Government-pushed growth

The Korean economy grew by 2.7 percent last year, the slowest pace in six years. It falls in line with the government’s estimation and the Bank of Korea’s forecast of around 2.8 percent to 2.9 percent. But it nevertheless raises worries.

The economy that had grown by 0.6 percent in the previous three quarters picked up to a 1.0-percent pace in the fourth quarter. But the growth was entirely due to government spending. Government spending gained 3.1 percent against the third quarter, the biggest jump since the first quarter of 2010, when the government carried out a stimulus to combat recession following the 2008-09 financial crisis. The share of the government spending in the gross domestic product (GDP) growth hit 1.2 percent, the highest since the first quarter of 2009. While economic growth hinged entirely on tax spending, the private sector’s contribution to growth decreased by 0.3 percent.

The outlook for this year is gloomier. The United States and China are showing signs of a slowdown and yet remain unrelenting in their trade war. The prolonged uncertainty over Britain’s Brexit also poses a risk to the global financial market and the euro zone economy. The International Monetary Fund (IMF) cut this year’s growth rate for the global economy by 0.2 percentage point to 3.5 percent. Exports have already been shaken. In the first 20 days in January, they fell by 14.6 percent compared to the same period last year.

The government remains steadfast in its income-led growth policy. President Moon Jae-in has become more eager to boost both the economy and innovation. But the government and ruling party still pursue changes in commerce and fair trade laws that can further dampen corporate investment and spirit. Yet, they neglect actions such as reforming regulations and the labor market to make a pro-business environment. There are too many risks and stumbling blocks against corporate investment. The president and governing power must become more practical and proactive about the economy to save their future.

JoongAng Ilbo, Jan. 23, Page 30