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Any hopes for the economy?

Jan 01,2020
이미지뷰
이미지뷰
Suh Kyoung-ho
The author is the editor of economic news at the JoongAng Ilbo.

This year has been excruciatingly frustrating on the economic front. The government under the liberal platform of President Moon Jae-in since May 2017 aggravated the economy by bulldozing away with radical increases in the minimum wage and a drastic cutback in working hours despite an alarming economic downturn.

Our economic growth rate for 2019 will likely fall short of 2.0 percent. The stock market almost alone was left out of the bull market elsewhere around the globe. The total U.S. stock market capitalization rose 28.2 percent as of Dec. 26 this year and China’s surged 34.7 percent. That of Seoul added a paltry 3.6 percent.

The Moon Jae-in administration tries to keep a brave face by stressing that the country’s sovereign credit rating remains higher than Japan’s and China’s to deny its accountability for the ruins of the economy. But the critical discrepancy — the sluggish stock market despite the country’s relatively sound sovereign credit rating — underscores the limits of the Korean economy. Although our economy won’t go bust, investors are unsure of the sustainability of Korea Inc. The country’s growth potential — the maximum pace of growth without stoking inflationary pressures — has been falling.

Sentiment was worse than what the data showed. The Ministry of Strategy and Finance, which had lowered the estimate of real growth for this year to 2.0 percent, projected the GDP deflator — a measure of the level of prices of all final goods and services produced in an economy — to fall 0.8 percent. The last time Korea saw a negative GDP deflator was in 1999 (minus 1.2 percent) following the 1997-98 Asian financial crisis and in 2006 (minus 0.2 percent) due to a crash in memory chip prices. The nominal growth rate reflecting inflation was estimated at 1.2 percent for this year — the lowest among members of the Organisation for Economic Cooperation and Development (OECD). Korea’s nominal growth rate would be in the 1 percent zone for the first time since 1998 amid a bailout crisis.

It is very rare for the nominal growth rate to hover below the real growth rate. Economic players feel the economy is weaker than ever because of the sluggish nominal growth. Income and sales are stagnant, even as the level of work and factory operation remains unchanged. Business and life seem harder than what the data say. Policymakers should be worried if our nominal growth lags behind our real growth. They should not be arguing for their achievements by pointing to every single positive number.

The government is confident of the economy performing better at a pace of 2.4 percent next year while private institutions are more somber with estimates slightly above 2.0 percent. The government’s optimism stems from the prospect that global trade would pick up due to eased tensions from a trade face-off between the United States and China. The economy also could benefit from the base effect against weak figures of 2019. But even if the economy does bottom out, it may not bounce back as it has in the past.

Will the economy shake out of the lethargy? The key lies in revival of consumer and corporate sentiment. The year-end conference among heads of business organizations brimmed with frustrations and complaints.

Park Yong-mann, chairman of the Korea Chamber of Commerce and Industry (KCCI), lashed at the ever-wrangling — and stalemated — National Assembly, passive administration and selfish mainstream groups, and at their ignorance about new convergence industries. Koreans must read the media to learn about how a sharing economy changes their lives because it cannot pick up here, Park sighed. Sohn Kyung-shik, head of the Korea Employers Federation, demanded business-friendly policies and balanced labor-management relationship from the liberal government. Huh Chang-soo, chairman of the Korea Federation of Industries, pleaded for social backing to support entrepreneurship at such a critical period in our economy.

Their calls reflect urgency in the economy. The legislature must pass the much-delayed bills to stimulate big data industries and fix the overly rigid flextime to help revitalize the economy.

Chang Byung-gyu, who chairs the presidential committee on the fourth industrial revolution, criticized the government for being “business-ignorant,” not for being “anti-corporate.” Is wishing for a different year in 2020 too much to ask?

JoongAng Ilbo, Dec. 31, Page 30