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(EDITORIAL from Korea Times on Sept. 6)

2018/09/06 07:12

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Trapped in low growth

Economic revitalization should be top priority

Korea's second-quarter economic growth data are raising concerns the economy might have lost steam. The Bank of Korea said Tuesday the country's gross domestic product (GDP) edged up 0.6 percent in the April-June period this year.

The GDP growth rate certainly dealt a setback to the already sluggish economy. It was down from 1 percent growth in the first quarter. It also paled in comparison to a 2.8 percent rise in the second quarter of last year.

The central bank attributed the poor performance to a sizable fall in facility investment and sluggish private consumption. Facility investment plunged by 5.7 percent, the worst since the first quarter of 2016. Private consumption increased slightly by 0.3 percent, an 18-month low.

Another negative factor is exports which rose by a mere 0.4 percent in the second quarter, a sharp fall from 4.4 percent growth in the first quarter. If exports, which account for around 50 percent of the GDP, continue to slide, the country could suffer a further setback to its economic growth down the road.

Asia's fourth-largest economy will likely find it difficult to meet its 2018 growth target of 2.9 percent. The government and the central bank are under mounting pressure to lower the figure again after they revised it down from 3 percent.

More worrisome is that there is little sign of an economic turnaround anytime soon. It is also hard to expect the country's exports to swing back to robust growth in the coming months. The nation's GDP growth has relied too heavily on a few industrial sectors such as semiconductors, which may slow down in the face of fluctuating global demand.

An escalating trade war between the U.S. and China, the currency turmoil in Turkey and other emerging economies, and soaring oil prices are adding insult to injury. Domestically, President Moon Jae-in's income-led growth initiative has also contributed to the economic slump although he and his policymakers are only trying to defend the ill-timed inclusive growth policy.

As many economists point out, it is much more difficult to see the economy regain growth momentum once it has lost steam. In this regard, it is imperative for the Moon administration to change its policies in a bid to prevent the economy from sliding into recession.

In fact, the Korean economy has already been mired in low-growth trap because it has increasingly lost competitiveness. Thus, it is urgent to regain this by finding new growth engines. For this, the Moon government should promote entrepreneurship and innovation.

Most of all, Moon and his policymakers must take the current economic situation more seriously. They should not ignore the warning signs of an economic recession, and not believe that the income-led growth drive is the only policy option to achieve sustainable growth. Arrogance and bigotry are only a recipe for failure.

(END)

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