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Moody’s blues (KOR)

Mar 06,2019
Moody’s has lowered its prediction for Korea’s economic growth this year to 2.1 percent, down from the 2.3 percent growth it forecast last November. The global ratings agency also lowered Korea’s expected growth for next year to 2.2 percent from 2.5 percent. The estimates are lower than our potential growth rate of over 2.5 percent. The gloomy figures also show a noticeable gap with the outlooks from the government and Bank of Korea, which expect 2.6 to 2.7 percent growth this year.

Moody’s based its forecasts on internal and external factors adversely affecting the Korean economy. In regard to exports — the main pillar of our economy — the agency expressed concerns about a remarkable decline in the demand for intermediary goods in China as a result of the Sino-U.S. trade war. “The dampened demand for semiconductors in China, in particular, affects Korea’s exports,” it noted. Moody’s primarily attributed Korea’s bad prospects for exports and investments to growing uncertainties from an unceasing trade conflict between Washington and Beijing and slowed growth of the global economy.

The ratings agency also linked our economy’s poor performance to the Moon Jae-in administration’s relentless push for rapid increases in the minimum wage. “Sluggish employment in Korea owes much to the hikes in the minimum wage over the last two years,” it warned. “Small- and mid-size companies regard the government-enforced wage increase as a challenge to their competitiveness.” In other words, Moody’s underscored that a government bent on regulating enterprises despite a hostile macroeconomic environment played a key role in weakening the country’s growth.

The government has limits in revitalizing exports over the short term — except for hoping for an improvement in international factors. But when it comes to domestic factors, the government must keep the agency’s analysis in mind. The Moon administration is still engrossed in lowering the competitiveness of our economy. As we have seen, the liberal government’s strong push for pro-labor policies only helped our growth rate to plunge and widen income polarization even further.

We cannot but cast suspicion on the viability of the administration’s hyped “income-led growth” policy. Blue House policy chief Kim Soo-hyun praised the performance of our economy one month ago. “Given the dim growth prospects around the globe, our 2.7 percent growth last year is encouraging,” he said. “We can surely turn our economy around.” We wonder if he really can say that now.

JoongAng Ilbo, March 6, Page 30