Economic obfuscation

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Economic obfuscation

The Bank of Korea releases 131 pieces of economic statistics annually with the support of 124 Ph.D. and 538 masters level analysts. The data serve as a significant gauge to read the future direction of our economy. Economic players like the government, households and companies set their economic plans based on these statistics.

The Outlook for the 2015 Economy announced Thursday by the central bank is extremely gloomy in two respects. First, the report forecast a worse economy for this year. Second, the bank’s frequent revisions of forecasts really make us doubt its ability.

The BOK lowered its estimated growth rate for 2015 four times over the past year: from 4.2 percent last April to 4 percent in July to 3.9 percent in October to 3.4 percent in January and finally to 3.1 percent this time. Its forecast for the consumer price index is no different: it raised it to 1.9 percent from 0.9 percent in just three months. The central bank’s explanation - that oil prices and public utility charges fell more sharply than expected - is unconvincing. We wonder if the government can really draft its economic blueprint based on such unreliable data. At times like this, when there is a mix of pessimistic and optimistic economic indicators, the central bank’s role is very important.

More alarming are ominous economic indicators. Production in the manufacturing sector decreased 4.8 percent in February, with the nation’s exports declining for three consecutive months. Despite some rebound in the stock market and construction market earlier this year, analysts say it’s too early to tell. Some pessimists say the BOK must lower its growth forecast for 2015 into the 2 percent range as Nomura Securities (2.5 percent), BNP Paribas (2.7 percent) and HIS Inc. (2.9 percent) have already done.

Such a low-growth trend is likely to persist. Bank of Korea Gov. Lee Ju-yeol urged the government to take an aggressive approach to rejuvenate the supine economy through fiscal stimuli. A drastic modification of the government’s economic plan seems inevitable due to a sharp reduction in tax revenue. Yet the senior secretary to the president for economic affairs fuels confusion with yet another round of optimistic diagnosis that economic recovery is picking up.

The BOK must carefully read economic signs without a self-serving assessment that our economy is not in deflation yet, and the government must strengthen our economic fundamentals through bold structural reform. JoongAng Ilbo, April 11, Page 26

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