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The frog feels the heat

Oct 26,2018
Five years ago, McKinsey & Company compared our economy to a “frog in a pot of slowly boiling water.” The top consulting company has ratcheted up its warning. The temperature of the water has gone up, it said. That analysis signifies the obliviousness of many despite a crisis looming on the horizon.

The Bank of Korea announced our economy grew by 0.6 percent in the third quarter over the previous one. The government may be relieved despite the mediocre performance. Exports were solid and government spending was massive. But investments for the future were frozen or negative as seen in a 4.7 percent decrease in facilities investment in the quarter — negative growth for the sixth month in a row — and a 6.4 percent reduction in investments in construction, the lowest since the second quarter of 1998 after the Asian financial crisis. Concerns are growing over the possibility of our economy entering the early stages of a recession.

Our stock market’s steep plunge has set a new record this year. The Kospi index has hit the lowest point since January 2017. Investors sold stocks worth over four trillion won ($3.5 billion) this month. We cannot expect a turnaround soon as even the National Pension Service, the largest investor in Korean stocks, has started selling to avert further losses.

The stock market losses owe a lot to the U.S-China trade war, rate hikes by the U.S. Federal Reserve and China’s slowing economy. The government should find out why our stock market shows an overly sensitive reaction to the fluctuations of bourses overseas. Foreign investors single out South Korea as one of the markets most vulnerable to Sino-U.S. trade frictions. Some analysts classify the South Korean economy as being under China’s influence. We should end our economy’s excessive coupling with China. To do that, we must join the group of advanced economies — not the group of emerging economies — in the MSCI World Index or the FTSE Global Bond Index.

Foreign investors are weighing Korean stocks based on the growth potential of our companies, which depends on their competitiveness. Some of our flagship companies are not doing too well. Analysts attribute this to the increasing risks the government has been taking since it took power 17 months ago.

The government must stop blaming the corporate sector’s selfishness. If it resorts to quick fixes such as cutting fuel taxes or creating short-term jobs for people with low incomes, that’s the same as pouring a cup of cold water into a pot of boiling water. Makeshift measures cannot save the frog.

JoongAng Ilbo, Oct. 26, Page 34