Korean economy still in a fogThe Bank of Korea released its brightest news on the Korean economy yet. Gross domestic product grew 3.3 percent year-on-year in the third quarter, the first time it has crossed the 3 percent threshold since the fourth quarter of 2011. The latest data raises hopes that the Korean economy, which has been moving at pace below 3 percent for two years, may finally be picking up speed. From the previous three-month period, the economy grew 1.1 percent, the second consecutive 1-plus percent quarter. It’s another sign the economy may have bottomed out after muddling along in the zero percent range for eight consecutive months. From third-quarter data alone, the economy may be on a recovery path.
But it’s too early to be confident as third-quarter data could be misleading. In the same period a year ago, Korean GDP grew 1.6 percent year-on-year. This year’s growth is based on a comparative low figure in 2012. The third quarter also benefited from record profit by Samsung Electronics. The world’s leading mobile phone and memory chip manufacturer posted operating profit of 10.16 trillion won ($9.58 billion) on revenue of 59.84 trillion won in the third quarter.
The combined revenue and operating profit of the country’s 10 largest companies cannot match Samsung’s. Except for Samsung Electronics, the country’s nine other large companies saw revenues fall 1.2 percent and operating profit fall 8.8 percent year-on-year in the third quarter. Other large and midsize companies could not have performed any better than that. Other than Samsung Electronics, Korea Inc. is faring poorly, which translates into a weak growth engine for a manufacturing-oriented economy.
In the real economy, there are few signs of recovery. The government also didn’t place much significance on the third-quarter data, simply stating that it was hopeful that this year’s economy could grow at the forecasted 2.8 percent. Hyun Oh-seok, deputy prime minister for the economy, urged the National Assembly to quickly pass 102 bills to help revitalize the economy. He could be suggesting that the economy would safely recover if government-proposed bills take effect and, at the same time, warning that the onus could be on the legislature if the economy does not pick up by the year’s end.
The second-half data is important not only because it lets us decipher whether the economy would achieve this year’s growth target, but because it would suggest whether the economy has escaped a structural slowdown. The economy at best would grow below 3 percent this year. But if it maintains a stable growth pace throughout the second half, the data could suggest it is on its way to performing at its potential annual growth rate of about 3 percent.
But third-quarter data alone won’t provide assurance. The government hopes the economy could grow 3.9 percent next year or at least close to its growth potential rate of 3.8 percent. But think tanks and investment banks at home and abroad all have downgraded their outlook on next year’s Korean economy, estimating growth in the 33.5 percent range. Some banks even estimated growth of less than 3 percent. Experts remain mixed and unsure about the pace of economic recovery.
Yet the Park Geun-hye government has failed to provide a strong direction and strategy to accelerate growth, merely fidgeting with figures. On the economic front, the government in its first year primarily has been working on measures to ensure economic justice and equality, and raise funds for new welfare programs. Its intermittent stimulus actions targeting real estate and investment were only makeshift and helped little to provide traction for the slow-moving economy or a vision for sustainable growth.
That sent mixed signals to the business sector and market. While urging companies to increase investment, the government toughened regulations and tax audits. The Park government’s prized policy goals - like drastic increases in welfare and employment, and fiscal integrity - cannot be accomplished without meaningful economic growth. Because it is carrying out policies without a focus on growth, the policies themselves lack impetus and effect.
It is hard to predict various external and domestic factors that can affect economic growth. But actions to strengthen the economy that have a clear vision and a strategy to promote growth can be pursued and accomplished regardless of potential variants. A country with a clear vision and a road map to ensure stable growth can be resilient against risks and turn them into new opportunities. Otherwise, the economy will be at the mercy of various uncertainties. It is why we cannot feel safe about next year’s economy.
*The author is an editorial writer of the JoongAng Ilbo.
by Kim Jong-soo