It’s time to revive investmentA perfect storm is brewing around the Korean economy. All the data has turned negative — industrial output, investment, exports, consumption and employment. As a result, the gross domestic product (GDP) fell by 0.3 percent in the first quarter. Skepticism is also spreading. Nomura Securities cut its estimate for the Korean GDP growth to 1.8 percent, from 2.4 percent, and LG Economic Research Institute downgraded its number to 2.3 percent from 2.5 percent, all falling far low of the government’s 2.6 percent target.
The Moon Jae-in administration has earmarked another 6.7 trillion won ($5.8 billion) in extra budget on top of this year’s supersized fiscal spending plan of 470 trillion won. The government expects the supplementary budget to help grow the economy by 0.1 percentage point. Fiscal spending alone may not be enough to reverse the trend. Bank of Korea Gov. Lee Ju-yeol admitted that the country may underperform the central bank’s target of 2.5 percent if the economy does not pick up throughout the remainder of the year.
Uncertainties in the trade-reliant economy have aggravated foreign exchange volatility. The U.S. dollar shot up above 1,160 won for the first time in two years and three months. During the five trading days of last week, it gained 24.1 won. To make matters worse, exports have been contracting for five consecutive months since December. The instability in the exchange rate amid a receding economy could spell crisis in the making.
The Blue House blames the worsened conditions on external factors such as the ongoing trade war between the United States and China. But none of the major exporters have seen their economies contract in the first quarter. The U.S. economy in the same period added 3.2 percent on year. Many publicly traded U.S. companies did better than expected in the January-March period. Our economy did not slip into the negative territory under the former Park Geun-hye administration even when it was suffering from the Greece-triggered fiscal crisis and a lack of tax revenues for three years.
The government must admit its income-led growth policy was doing harm. Yet the Blue House plans to form a task force to publicize the positive side of the policy. The government must stop anti-market and anti-corporate policy experiments, and concentrate on reviving investment sentiment. An aggressive response and deregulation must take place to normalize growth for the economy.
JoongAng Ilbo, April 29, Page 34