Dark clouds over the economyEconomic woes and challenges from domestic and overseas factors surfaced in force after the retreat of major plans related to North Korea and local elections. Global financial markets are rattled by a number of factors from a trade war between the United States and China and a faster pace for monetary tightening in the United States. At home, repercussions from hikes in the minimum wage and the shortened workweek have begun to take a serious toll on the economy.
The financial market demands immediate attention. The U.S. dollar shot up above 1,100 won for the first time in seven months. Depreciation in the Korean won can help the profitability of our exports, but a steep gain could shake the market.
The gap between the rates in the United States and Korea will widen further with two more rate hikes coming up over the next five months. But the Korean central bank is restrained in pushing up the policy rate it has kept unchanged since November due to the fragility of the domestic economy.
A trade showdown between America and China also aggravated uneasiness in capital markets. After U.S. President Donald Trump signed off heavy tariffs on Chinese imports, China slapped tit-for-tat duties on U.S. products. Korean manufacturers could find themselves caught in the crossfire as their intermediary goods make up a large portion of Chinese finished goods bound for the United States.
As for the domestic front, job additions hit its worst-ever level with fewer than 200,000 for the fourth consecutive month. The business sector is struggling to accommodate the universal cutback in workweek to 52 hours from 68 from July 1.
The government’s policy to phase out nuclear reactors also has caused a serious dent on the public sector and power supply. Korea Hydro & Nuclear Power held a surprise board meeting to close down Wolsong No. 1 reactor before its legitimate life ends and canceled projects to construct four new reactors. The decision comes amid a spike in international oil prices and raises concerns for a supply of power and jump in utility fees.
Economic affairs are now at the center of public focus. President Moon Jae-in has been complaining of slow progress in generating growth through innovation, but the government appears to be lacking ideas and will. Moon’s Policy Chief Jang Ha-sung insists on seeing through the policy on income-led growth despite its adverse side effects.
But the Blue House and government must stop with their narrow-sighted approach and pay attention to the voices of the corporate community so that the economy can be normalized in a natural corporate-led manner through new hiring and investment.
JoongAng Ilbo, June 19, Page 30