Hope for 2016
A New Year has arrived, and we all hope the year 2016 will be better than the last. But various signs, data and estimates suggest otherwise. Institutes at home and abroad have revised down their growth estimates for Korea to a range from 2.4 percent to 2.7 percent, underperforming this year’s 2.7 percent. Korea’s economy could underperform the global economy, which is expected to grow from 2.9 percent to 3.3 percent this year.
The economy faces dangers from outside - higher U.S. interest rates, a slowing Chinese economy and troubles in oil-producing countries due to plunging oil prices. At home, a fragile recovery in domestic demand is at risk from a fizzling-out of the real estate market, snowballing h ousehold debt and a delay in much-needed structural reforms.
But forecasts are not always right. Theoretically justified estimates can miss their targets. There is a market saying that not every forewarned crisis actually arrives. When people know of dangers ahead, they tend to work hard to avoid them. Many would have prepared themselves for bumpy rides this year.
The U.S. base interest rate, which “lifted off” in December from the near-zero percent level it has been at since 2008, could go up as high as 1.25 percent to 1.5 percent through four rounds of hikes. The repercussions on the global economy will not be that damaging if the rate does not move beyond the expected range. Some predict the hikes will be smaller. Recent data suggests the U.S. economy was near a cyclical peak. Because of the plunge in oil prices, inflation could remain depressed. In other times, the central bank would have lowered the interest rate, not raised it. The U.S. Federal Reserve may feel constrained in its policy and be satisfied with raising the rates just twice during the first half. If the U.S. policy rate remains below Korea’s current base rate of 1.5 percent, the Bank of Korea would not have to rush to raise its rate.
The Chinese slowdown also could have been overrated. Markets around the world were rattled last year on concerns of the world’s second-largest economy growing at under 6 percent and the colossal amount of debt in China. But given Beijing’s determination and capabilities, authorities will likely manage to keep the economy running at 6 percent this year. Policies geared toward bolstering domestic demand and bilateral free trade between Korea and China could work favorably towards Korean companies.
The other worry is nose-diving oil prices. Shipbuilders and overseas constructors have been hit hard by the slump in the oil industry. But the fall has served as a windfall for chemical and refining companies and automakers. One study claimed that the plunge in international oil and other commodity prices had helped bring revenues of over 80 trillion won ($68 billion) to the Korean economy last year.
The real worry is at home. Structural reforms have been slow due to opposition in the legislature and from unions. If reforms are not expedited, the country could face real trouble two to three years later. But structural reforms aimed at transforming the economic paradigm cannot be achieved in a couple of years. Although the process has been slow, the government must nevertheless push ahead with the reform drive by making revisions. It must continue with its effort to persuade society of the need for the reforms.
The April general election comes at a rotten time. But at the same time, it gives voters a chance to throw out politicians from the days of ideological warfare and replace them with people willing to work for the people and country. The Korean economy is being described as the frog in the soup pot in waters that are gradually getting warmer - and will soon start to boil. But we know the dangers looming over us. We are fully aware of the waters getting warmer and are trying to pull ourselves out of the caldron. There is still a chance for a Korean revival, especially if our political class gets real. The parliamentary election in April and presidential election in 2017 could be our traction.
JoongAng Ilbo, Dec. 31, Page 28
*The author is the business news editor for the JoongAng Ilbo.
by Kim Kwang-ki