Come to your sensesKorea’s manufacturing industry is quickly losing steam. According to the industrial output data from Statistics Korea, manufacturing capacity was shaved by 0.9 percent as of November from a year ago as a result of an 18-month-straight losing streak. Slacken facility investment was the key reason. Facility investment was flat in November against a negative figure from a year ago. It has decreased by 10.4 percent from 2017.
The factory operation rate slipped to 71.9 percent. Companies will hardly invest under such poor performance. Jobs cannot be created as factory jobs have been in a downturn for 20 straight months.
Few businesses and industries look safe. According to the Ministry of Employment and Labor, hiring plans by companies employing more than five workers have hit a 10-year low. Of first floor stores in the streets of Jongno 1 and 2 districts in downtown Seoul, one out of three shops are empty.
Even a 2.0 percent growth this year may be unachievable. The economy has not performed so poorly since the crisis-hit periods of 1997-1998 and 2008-2009. Korea is expected to lag behind Japan in nominal growth, according to the Organisation for Economic Cooperation and Development (OECD) estimate. This year’s growth was mostly led by government spending. The private sector has become that weak. Corporate activity has become lethargic under rigid regulations and labor market. This cannot go on.
The government’s role in the economy must stop at stimulating activity in the private sector to maximize the effect of public spending. Regulatory and labor reforms are crucial. Yet the government has only tightened regulations, banning ride-hailing services like Tada and neglecting reforms in the labor sector. Companies are taking their capital and resources abroad. The government keeps to anti-business and pro-labor policy. It plans to spend over 70 trillion won ($60.5 billion) in cash handouts and pork-barrel projects next year with election on Apr. 15. It will issue a new debt of over 60 trillion won.
The ramifications of government misjudgment and poor governance could be terrible. The Bank of Korea cannot afford to lower the interest rate already at a record low.
The fiscal balance is also at risk. As long as the government continues with anti-business and pro-union policy, such a colossal spending could go to waste. Private institutions are warning of a protracted slowdown. The government must regain its senses.
JoongAng Ilbo, Dec. 31, Page 34