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Prospects for 2019

Dec 13,2018
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President Moon Jae-in receives a policy briefing from new Deputy Prime Minister for the Economy Hong Nam-ki at the Blue House on Wednesday. [NEWS1]
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Kim Kwang-ki
The author is an editorial writer of the JoongAng Ilbo.

The economy is the top concern for the coming year. Analysts at home and abroad — at financial and non-financial companies — are all pessimistic about next year’s economy. The outlooks for both the global economy and our local economy have turned bleak. Business sentiments have become negative. But we need not be entirely gloomy: economic outlooks can miss. As the economy is a living organism, sentiments can change and respond to economic developments, affecting the economy for the better or for worse.

Market experts make money by betting on the odds. Let’s go over some of the key outlooks with the proviso that these projections can go equally wrong.

The general consensus places annualized economic growth for next year at 2.3 percent to 2.6 percent, slowing from this year’s 2.7 percent estimates. The minimum wage will go up by another 10.9 percent starting in 2019 after this year’s 16.4 percent hike. The back-to-back double-digit rises on top of a sharp cutback in the workweek to 52 hours could take a heavy toll on the fragile economy. Labor protests can turn more violent and further weaken business sentiments.

At worst, growth could fall below 2 percent. Even that level of growth should be a relief considering the stubbornness of the Moon administration on its so-called income-led growth policies. Strong exports and the purchasing power from per capita incomes of over $30,000 may cushion the economy from a fast slide into recession.

If the economic conditions deteriorate further and cause greater job losses, President Moon and the ruling Democratic Party would lose public confidence. They may face their judgment day in the legislative elections scheduled for April 2020. The ruling party may scramble to save votes before it is too late.

The government and ruling party may finally surrender the income-led growth agenda and shift towards pro-business policies through aggressive deregulation and promotion of innovation. The minimum wage setting system could be overhauled and flextime may be extended to as long as six months. The National Assembly could hurriedly pass bills on deregulation to stimulate the economy.

Labor unions and civic groups will protest, but they cannot prevail against public sentiment that has turned bitter. Unions may return to the tripartite negotiating table to discuss a labor-management compromise.

Then there is the Chinese factor. The trade war between the United States and China will likely be renewed after a three-month truce. Their conflict could go beyond tariffs on goods and become a contest over new technologies and industries. The real war will start.
Still, the Chinese economy could grow at a pace of 6 percent. That growth would ensure Korea’s solid exports to China. That’s mostly thanks to the increased share of China’s domestic consumption in its gross domestic product (GDP). In the past, exports’ share of the GDP have reached nearly 40 percent, but they have fallen below 20 percent as domestic consumption makes up more than half of China’s GDP, making the world’s second largest economy less vulnerable to global trade slumps.

China’s technology initiative may hit a snag under mounting U.S. pressure. But that may be a boon for Korean enterprises. Korea’s tech companies may become less worried about China’s competition. China could also reach out to Korean capital and technologies to make up for the losses with the United States.

You can hardly expect a breakthrough in inter-Korean economic exchanges in the new year. Summit talks between North Korea and the United States, and between the two Koreas could take place. But new talks won’t likely bring about immediate development in the denuclearization of North Korea. The campaign to denuclearize North Korea and lift economic sanctions will likely be a lengthy and not necessarily successful process. In the meantime, North Korea will sustain itself on backdoor support from China.

The outlook for the asset market is not bright. Stock and real estate prices are likely to undergo a sharp correction in the first half. The Bank of Korea won’t be able to make another hike in the benchmark interest rate in the face of tough economic conditions. Liquidity will remain ample. Liquidity will be on standby for further bargains. Popular housing districts in Gangnam and elsewhere could revive in the second half. The stock market could also rebound as investors turn to equities that pay higher dividends than bank yields.

JoongAng Ilbo, Dec. 12, Page 31