Park’s grim economic challenges

A new government is in the making under the guidance of the presidential transition committee. But President-elect Park Geun-hye and her government face an unfavorable economic climate.

The Bank of Korea recently cut its estimate for GDP growth to 2.8 percent from 3.2 percent, revised downward again from the 3 percent outlook in December. The Korean economy grew at a slower-than-expected 0.4 percent in the fourth quarter from the previous three months, moving under 1 percent for the seventh consecutive quarter. Its outlook for this year is hardly any better.

The negative effects of slow growth are quickly seeping into the economy. The number of newly hired workers fell below 300,000, raising concerns about jobs and overall sluggishness. Corporations and consumers are cutting spending, too, and this could lead to a prolonged recession and even deflation.

Against this backdrop, the quantitative easing by the new Japanese government has sent the won up against the yen, undermining price competitiveness of Korean industrial products in overseas markets. Escalating household debt and plunging home prices are also weighing heavily on the fragile economy. The new government set off into a sea of uncertainty and hazards.

It appears that it will be quite difficult to reverse the low growth. The slowdown, fueled by the fiscal crisis in Europe that dealt a heavy blow to the world economy, won’t likely end any time soon. The local economy also has lost steam due to structural weaknesses like waning productiveness caused by an aging society and low fertility rate.

Under such circumstances, Park and her new government can hardly expect to do any miracle work. The weak economy will constrain Park’s ability to fulfill election promises. Jobs won’t be created and people’s lives won’t get better without growth. Demand for welfare will increase, but finding funding won’t be easy due to reduced tax revenue.

The president-elect and her transition team must face the hard reality. Since they cannot escape inevitability, they must come up with action plans and prioritize work. If they cannot come up with funding for the welfare plans they promised, they should inform the public and seek feasible alternatives. At the same time, they must articulate a new vision for growth so the public can understand and willingly endure hardship. All the ideas require clear communication with the public.

An economic slowdown is a challenge the incoming government must address. It is not impossible to overcome, though, and whether the country’s economy can pull out of the slump depends on the will of the new government.