Time to face factsThe reality check should come down hard. The Korean gross domestic product (GDP) in the first quarter unexpectedly contracted 0.3 percent, fanning skepticism about Asia’s fourth-largest economy. Nomura Securities slashed its 2019 estimate to 1.8 percent from 2.4 percent. Yet the government remains in self-denial.
The Blue House blamed it on external factors. The Bank of Korea said the figures looked bad against the relatively robust number of 1 percent gain in the previous quarter. Authorities refuse to admit the possibility of a recession.
In fact, the real world is worse off than the data. The vacancy rate in office buildings along the commercial areas in Gangnam District, southern Seoul, has doubled from the usual 10 percent average. The combined operating profit of listed Korean companies was estimated at 171 trillion won ($147 billion) at the beginning of the year, but has been cut by 27 trillion won after their first-quarter reports. The self-employed sector has been devastated.
The deteriorated external conditions added to the woes of the trade-reliant economy. But the U.S. stock market remains bullish and the Chinese economy beat expectations in first-quarter growth.
There must be something wrong if Korea alone is performing at its weakest in a decade. Economists are in agreement to pinpoint the cause as the rigid pro-labor and wage-led growth policies under the liberal government. Minimum wage has gone up nearly 30 percent over the last two years and has wiped out jobs. The forcible conversion of irregular jobs to permanent ones has worsened flexibility in the labor market. Consumption and corporate investment have weakened. Growth reversed when exports lost ground. Yet the government refuses to examine or correct its policies.
Authorities blame defeatism — and the media for spreading it. They turn a deaf ear to cries from the business sector. No solutions can come out amid such self-righteousness. Hong Nam-ki, deputy prime minister and finance minister, vowed to mobilize “all possible policy means.”
But the rhetoric has been replayed over and over. The promise was made when announcing the economic policy outline for 2019 in December and upon the release of catastrophic job data in January. The only “policy means” the government came up with was increased fiscal spending.
With the GDP at the worst since the financial crisis in 2008, the government should form an emergency team. It must show that much will to fight the crisis. It must humbly re-examine policies and invite wisdom. Without a full policy makeover, there is no hope for the economy.
JoongAng Sunday, April 27, Page 34