Time to change courseA recession is looming. Facilities investment has slumped for six months in a row, the longest decline since late 1997, when the nation was hit with a near-default crisis. Sluggish investment has cut employment and dampened income and consumption. Leading indicators have all turned negative, demanding quick and radical policy solutions.
According to a government report on Korea’s August industrial output, capital investment fell by1.4 percent, extending losses for the sixth month in a row. The last time capital exchange had been so lethargic was from September 1997 to June 1998. Machinery investment dropped by 3.8 percent due to reduced investment in the semiconductor sector. Retail sales — a barometer for consumption — made zero growth in August after a slight recovery in June and July.
Overall industrial production increased by 0.5 percent, extending a feeble gain for the second consecutive month. But the leading indicators point to a gloomy outlook. The coincident index measuring current economic activities fell to 98.9 — the fifth straight month decline and the lowest reading since August 2009. The leading indicator measuring future economic activities also slipped 0.4 of a point to 99.4.
The Organization for Economic Cooperation and Development (OECD) downgraded its growth forecast for the Korean economy this year to 2.7 percent from 3.0 percent. The full-blown and protracted trade war between the United States and China and high oil prices worsen prospects. LG Economic Research Institute predicted that Korea’s growth could slow to 2.5 percent next year.
The economy cannot move if investment stays sluggish. Companies are not investing because they are uncertain about the future of our economy and because they cannot find areas for investment. They also are wary of the liberal administration and its pro-labor policy.
The government must quickly change economic policies. It must stop insisting on its untested income-led growth policy and concentrate efforts on revitalizing the corporate sector. Insisting that the economy is moving smoothly by choosing not to see looming dark clouds is pure arrogance. Regulations should be removed to create new opportunities for enterprises. Investment must increase to generate growth in aggregate output, jobs, income and consumption. The government must reexamine policy direction for a new growth roadmap.