[Editorial] Structural reform is the key to survival

The Year of the Rabbit has arrived. But what awaits may not be pretty on the economic front. Since the global economy is headed for a recession, exports that drive the Korean economy are not so promising. The government estimates a 4.5-percent decline for this year.

The domestic front is equally dismal. Corporate and consumer spending will likely be restrained by high interest rates. Facility investment is expected to drop by 2.8 percent and consumption growth will likely be halved to 2.5 percent from last year. Due to input cost rises and sluggish sales, there is less room for companies to increase investment. Households chained by debt load would have less to spend after paying off costlier debt interest. Due to double stagnation in external and domestic demand, economic growth is expected to fall below the 2 percent growth potential.

In his New Year’s address, President Yoon Suk Yeol vowed to navigate household and corporate de-leveraging and bolster exports. He stressed the need for greater economic and industrial alliance with countries sharing the universal values in freedom, human rights, and respect for law. “Value alliance” as Yoon emphasized would be the best “strategic choice” under our current diplomatic conditions.

Structural reform is essential for mid to long-term growth. Yoon criticized the forces clinging to vested rights and reiterated commitment to labor, education, and pension reform. He will ensure law and order in labor-management relationship for labor reform, which can help vitalize corporate investment by addressing business complaints over “tilted playing field” in labor relation. Labor reform could also help to up productivity and growth potential. Reform in education can improve the imbalance in regional development and also help lower our low birth rate. Pension reform is also essential for economic sustainability and security in future generation.

Economic policy must not be swayed by political influence ahead of the parliamentary elections next year. Upon signs of recession, lawmakers could argue for supplementary budgeting. Both parties could join hands in expanding government spending ahead of the parliamentary elections next year through deal-making. Although rapid cooling in the economy must be prevented, artificial stimuli should be kept at bay. To prevent populist influence in budgeting, the government must re-pursue with the bill mandating fiscal integrity by law.