Avoiding the obvious
The author is a columnist at the JoongAng Ilbo.
I’d like to go on correcting the president’s perspective on the economy. Otherwise, he will continue to maintain that the economy is moving in the “right direction” and keep on with his damaging policies. With a show of confidence in the economy, the president is suggesting he won’t withdraw the income-led growth policy. But the people won’t put up with it any longer. No parent would keep on paying for an expensive tutor under whom the child’s grades have worsened despite heavy spending over the last two years.
The president may insist that the economic scores are not that bad. Before he makes his argument, he should have a look at the data his aides in the presidential office or government have hid from him. The data clearly show the economy cannot be worse.
First, composite leading indicator (CLI) stood at 98.79 in July, its 26th straight month under 100 — the longest-ever period. Under the Organization for Economic Cooperation and Development (OECD) figure, a reading below 100 indicates a slowing economy.
Second, electricity for industrial use fell by 2.1 percent on year to 24,609 gigawatt hours in July. The demand mostly from the manufacturing sector has been falling since April. Four months of falls suggest factories are being idled. In the past, consecutive contractions did not last beyond two months.
Third, the consumer price index rose by 0.5 percent on average from January to August, the lowest ever. Zero inflation has only been experienced in 1999 in the aftermath of a bailout crisis and in 2015 amid an oil price crash and the outbreak of Middle East Respiratory Syndrome (MERS). Zero inflation mirrors protracted depression in domestic demand and a prelude to deflation.
Fourth, exports decreased by 21.8 percent through Sept. 20, with the losses in the double digits widening and stretching the losing streak for the 10th month. Export reduction in the second quarter was the second biggest among G-20 economies.
Fifth, the gap between the top 20 percent income group and the bottom 20 percent group widened to 5.30, indicating the worst inequality since related data was first tracked in 2003.
Sixth, the share of middle class — those earning from 50 percent to 150 percent of the median income — in total households fell to 58.3 percent by the end of June, the first time below 60 percent. In December 2016, under the past government, the share was 66.2 percent.
Seventh, the OECD has downgraded Korea’s economic growth estimate from 2.4 percent to 2.1 percent for this year and next year. Nine foreign investment banks on average estimate 2 percent growth for the Korean economy this year, which would make for the worst performance since the 2008-2009 financial crisis.
Eighth, private investment growth fell by 7 percent on year as of the end of March, according to Bloomberg. Corporate investment growth, which peaked at 16.2 percent in March 2017, has been skidding under Moon Jae-in administration. In the meantime, overseas investment by Korean companies hit a record high of $47.8 billion last year.
Ninth, the number of those under 30 without jobs for more than a year reached 680,000, taking up 7.5 percent in the age group, the highest since 2009.
Tenth, of the estimated annualized growth of 2.0 percent, 1.8 percent has been led by government spending whereas 0.2 percent came from the private sector. The Korean economy therefore is entirely sustained by tax-financed spending.
All the data reflecting business activity, growth, employment, distribution, exports and consumption are at their worst. Home prices in Gangnam, southern Seoul, have surged by 34 percent over the last two years despite multiple regulations and clampdown on housing prices. The economy is mostly led by the public finance integrity sustained by past governments. The economy faces a growing predicament on the external front as seen in a protracted trade war between the United States and China and Korea’s own trade tensions with Japan. When entering an unchartered course, the driver should carefully read the road and other environmental conditions instead of relying on one’s conviction and intuition. Still, if the driver insists on taking the path he thinks is right, I would like to remind him of the famous quote from Albert Einstein: “Insanity is doing the same thing over and over again and expecting different results.”
JoongAng Ilbo, Sept. 26, Page 34