No visions for growthThe potential economic growth rate epitomizes the underlying and actual capabilities of the national economy. It is the best the country can do based on its available labor and capital resources without variables like inflation. Korea’s potential growth rate has been skidding for a long time, but 3 percent was a long-held threshold.
That faith has come under challenge. The Bank of Korea confirmed the real gross domestic product grew 2.7 percent in 2016 after moving at 2.6 percent in 2016. The growth is estimated to further slow to 2.5 percent in 2017, raising doubts about the economy running beyond 3 percent. BOK Governor Lee Ju-yeol said there was need to re-examine the country’s potential growth rate.
The Korean economy has been mired in a slow-moving rut due to sluggishness in key engines of private consumption, corporate investment and exports. Without the help of government-led stimuli in real estate and private consumption and depressed oil prices, last year’s economic performance would have been worse.
Still, there are no hopeful signs for the end to the lethargy. Consumption and the real estate market began to stoop in the fourth quarter. Many institutions forecast a growth of mid-2.5 percent or less. The government also set a growth target below 3 percent for the first time since the financial crisis in late 1990s.
The Korean economy is against bigger challenges at home and abroad this year. The lengthy leadership vacuum due to the political scandal has worsened lethargic consumer and business sentiment amid uncertainties on the external front from anticipation of higher interest rates and protectionist trade practices from the United States and growing conflict with China. Despite tough talks on labor and private-sector reforms, no progress has been made.
The economy can be saved through a revival of consumer and corporate spending. The presidential hopefuls all cry out for better growth. But they must present clear action plans, not ambiguous rhetoric. The economy is the only pillar to buttress the country against unprecedented political unrest. Politics must tend to the economy before the economy takes revenge.
JoongAng Ilbo, Jan. 26, Page 26
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