Heads in the sandKorea’s economy is headed into a dark tunnel of low growth. The International Monetary Fund on Tuesday lowered its projection for the world’s economic growth for 2018 and 2019 to 3.7 percent from 3.9 percent, citing a slowdown of the global economy as a result of the Sino-American trade war and repercussions from the Fed’s interest rate hikes. Shocks from those two major factors will certainly deal a critical blow to the export-dependent Korean economy.
The IMF moved its outlook for Korea’s growth rate this year down to 2.8 percent from 3.0 percent and lowered it to 2.6 percent for next year. A bigger problem is the possibility of our economy falling into the trap of low growth in 2020 and beyond due to an increasing likelihood of the boom in semiconductors and petrochemicals ending next year. Nevertheless, the Moon Jae-in administration imparts no sense of crisis. The government still adheres to its blind optimism that the economy has been showing signs of recovery over the last 10 months. At a meeting on Monday among the Democratic Party, government and the Blue House, Lee Hae-chan, chairman of the ruling party, tried to bury his head even deeper in the sand. “It is always difficult to deal with economic affairs. I have never heard praise for the economy [when I served as prime minister in the Roh Moo-hyun administration],” he said.
Red lights are flashing on three key indicators — production, investment and employment — not to mention six straight months of declines in facilities investment and production capability. The number of jobless has exceeded 1 million for eight months in a row. As a result, hundreds of thousands of workers in their 30s and 40s — the backbone of our economy — lost their jobs. The number of new hires stood at a meager 3,000 in August and will likely show negative growth in September, compared to a monthly average of over 300,000 new hires last year.
The government must create an environment for the corporate sector to hire more workers. In a visit to SK Hynix, Moon admitted that jobs are created by companies. If so, the government must drastically change its policy direction. It must end its ideology-based drive for increases in the minimum wage and encourage enterprises to invest.
It doesn’t matter that eight large conglomerates promised to invest a whopping 40 trillion won ($351.5 billion). They can hardly keep their promises as long as the government does not change its anti-market policies. Under such circumstances, they cannot invest in technological innovation. Only when the government sees what they need can South Korea avoid the swamp of low growth.