[Editorial] Tackling economic challenges for 2023

Beating crises and setting the economy for a new leap has been the slogan for the economic policy direction for next year, according to the announcement by the Ministry of Economy and Finance on Wednesday. The government was dead serious in its economic perception. It estimated a growth of 1.6 percent next year, more somber than outlooks by the Bank of Korea and the Korea Development Institute as well as the IMF and the OECD.

The government usually puts its growth target higher than others in a show of its will to achieve the target by all possible means. Choo Kyung-ho, deputy prime minister for the economy and finance minister, said the government set a growth target “according to the most recent and objective data.” The economy has been fast cooling due to rapid rises in interest rates with all macro data, from exports to domestic demand and employment, turning negative. Due to augmented uncertainties, it would have been harder for the government to visualize policy effect.

Against the multiple headwinds, the government will aim to address both inflation and a weakening economy through a policy mix. Policy actions will be flexible according to conditions depending how prices move. Instead of putting inflation over growth or vice versa, the government plans to be agile to counter both challenges.

The government plans to go all-out to steer a soft-landing of the real estate market by lifting all possible regulations for owners of multiple homes and real home buyers. It will undo the toughened tax and loan regulations introduced to tame soaring housing prices under the previous government after it found the downward spiral in property value too steep. The government took the right direction because the punitive taxes on multi-home owners were against market principles and ended up reducing rental supplies from the private sector.

To stimulate sustainable growth, the government will push new growth initiatives aimed to foster future industries. The government also briefed the president on ways to groom talents in the high-tech sector.

To fundamentally address the chronic weakness in the Korean economy from demographic factors of low birth and aging, the causes of the illness should be removed to reinforce economic foundations. The reforms in labor, education, and pension are crucial. Although the policy outline vowed to initiate reforms in the three sectors, specific outline and road map must come out so that the drive does not lose steam ahead of the parliamentary elections in 2024.

Finance Minister Choo promised to present a government outline before the plenary National Assembly session next year. The promise must be kept as the government outline must come out within the first half so that the rivaling parties can deliberate.