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(EDITORIAL from Korea Times on Aug. 10)

2017/08/10 07:10

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Alarm in Korea Inc.

: Complacency about manufacturing is cause for concern

The recovery momentum of the Korean economy is waning after a brief warm breeze. Export growth has slowed a bit except for semiconductors and several other items, and private consumption remains stagnant. The government's strong anti-speculation property measures are freezing the construction industry rapidly amid skepticism that this year's economic growth target of 3 percent will be unattainable.

According to the finance ministry's Green Book monthly economic assessment report, exports, which account for half of the Korean economy, grew 19.5 percent in July from a year earlier. But the country's export growth would fall to 2.8 percent if shipments of semiconductors and vessels, which surged 58 and 208 percent respectively, were excluded. Retail sales rose only 1 percent in June after expanding 1.5 percent in the previous month.

Dwarfed by slowing exports and consumption, industrial production fell 0.2 percent in June from a month earlier _ a turnaround from a 0.2 percent increase in May. Capacity utilization at factories also dropped to an all-time low.

Views on Korea Inc. are also turning sour. The state-run Korea Development Institute warns that Korea's economic momentum has weakened. In a meeting of economic ministers Wednesday, Deputy Prime Minister and Finance Minister Kim Dong-yeon also echoed this view, saying Korea's recovery pace has remained unsound.

Complacency about manufacturing, triggered by the unprecedented semiconductor boom, is a major cause for concern. What's more worrisome is that the automobile and shipbuilding industries, which generate plenty of economic ripple effects, are running into trouble.

Hyundai Motor, in particular, has suffered a double-digit fall in its operating profit because of sluggish exports to China following Beijing's retaliation against Seoul's decision to deploy a U.S. missile defense system. Despite the company's plight, its labor union is set to begin a partial strike Thursday, demanding a 7.2 percent rise in basic pay. Furthermore, there have been widespread rumors that GM Korea might pull out of Korea. If this should happen, the automaker's withdrawal would leave nearly 300,000 people, including its subcontractors, out of jobs.

Against this gloomy backdrop, the new liberal government has come up with policies that could undermine investment sentiment. Contrary to the global trend, the Moon Jae-in administration opted to raise the corporate tax rate for bigger companies. The minimum wage will be increased by the biggest margin in 17 years next year to the detriment of self-employed business owners and smaller firms. All these measures are part of the government's scheme to drive income-led growth.

But there is no question that revitalizing the economy will be impossible without reforming our outdated labor and services markets. Deregulation is also essential to nurturing new growth engines. Only then will job creation be possible and income will grow.