Economic alarms are ringingExports that sustained the Korean economy against stubbornly lethargic domestic demand have been drooping, adding gloom to already foggy prospects for Korea’s economy this year. In its latest monthly report, the Korea Development Institute became decisively anxious about the economy, noting a “continued” — instead of “gradual” — slowdown due to weakened exports amid protracted sluggishness in domestic demand.
Exports in December fell by 1.2 percent on year. According to the customs office, exports in the first 10 days in January sank by 7.5 percent on year largely because of a 27.2 percent plunge in shipments of semiconductors. A recession is inevitable if exports lose grounds with little signs of improvement on the domestic economy.
The external environment has become equally unpredictable and unfavorable. The ongoing trade war between the United States and China, elevated protectionism and monetary tightening in the United States have all cut down growth outlook for the global economy. A faster slowdown in the two largest economies — the U.S. and China’s — has been predicted. In Korea, indicators for output, consumption and investment have all been worsening.
Companies both at home and abroad are out to streamline their businesses against negative prospects. Automakers GM and Ford, as well as financial institutions like Morgan Stanley and Nomura Securities, have already decided — or are considering — on layoffs. Korean banks and credit companies have begun to demand early retirements.
Emergency times require emergency action. The government and ruling party have become more attentive of the economy. Senior government officials have been meeting business leaders. In a New Year’s press conference, President Moon Jae-in vowed to make “tangible” improvements in the economy. But how he can keep the promise is questionable since he is still determined to push ahead with his controversial “income-led growth” policy. He still adheres to the claim that the old growth model can no longer work. Some in the ruling party accuse the critics of exaggerating economic conditions for political motives. Such self-serving and defensive posturing cannot lead to an objective understanding of the economic realities and practical actions.
The correlation between exports and domestic demand has weakened compared to the past. But the economy cannot afford any more weakening in exports while domestic demand remains fragile. A patient’s prescription depends on their ailment. A surgeon would not force harsh treatments on a weak patient. Business sentiments cannot improve when policymakers act differently from their words.
JoongAng Ilbo, Jan. 14, Page 30