An economy in a tailspinOn Thursday, the Bank of Korea announced that our economy grew by a mere 0.7 percent in the second quarter compared to the same period last year. Facilities investment fell by a whopping 6.6 percent and investments in construction contracted by 1.3 percent. Consumer consumption increased by just 0.3 percent, the lowest level since the last quarter of 2016. That’s not all. Exports grew by 0.8 percent, a marked decrease from 4.4 percent in the first quarter. In a nutshell, our economy faces serious troubles, with investment and consumption falling as well as an alarming decrease in export growth due to the deepening trade war between the United States and China.
If you look into the details of the central bank’s announcement, they show that our companies withdrew their investments in the face of the Moon Jae-in administration’s anti-market policies, including the relentless push for minimum wage hikes, the enforcement of a new 52-hour workweek for employees of large companies, and the upgrading of contract workers to permanent payrolls. As a result, businesses are struggling to stay afloat by attracting foreign investors through paying out dividends and disposing of their treasury shares, instead of advancing into new fields with good potential. Analysts link Koreans’ direct investments overseas — which broke the record last year - to an exodus of our manufacturing businesses.
Indicators for household consumption are not bright either. The Bank of Korea said our consumer confidence index fell to 101, a shocking 4.5 percent contraction in a month. So-called “income-led growth” - the keystone of the liberal administration’s economic policies - is based on a belief that if the government artificially raises low earners’ incomes, it will help them spend more and eventually make our economy grow. But this unconventional concept backfired. Instead of fueling the economy, it ended up discouraging consumption, not to mention dwindling facilities investment and jobs. The central bank’s report proves it.
The economy could be headed for a further fall in the second half as interest rates go up and the global trade war deepens. The government can hardly achieve its newly lowered goal of 2.9 percent growth if it doesn’t do some rethinking. The Moon administration must change its economic direction. It must wake up from the myth of income-led growth and move to re-energize all economic players involved. If it chooses to address a number of side-effects through quick fixes, it will only waste the people’s taxes and invite a political crisis.
JoongAng Ilbo, July 27, Page 30