Economy-related minister nominees who will work for the incoming government are regarded as market friendly. President-elect Yoon Suk-yeol on Sunday nominated Choo Kyung-ho as deputy prime minister and minister of economy and finance and Lee Chang-yang as trade, industry and energy minister and Won Hee-ryong as land, infrastructure and transport minister. The new government is expected to change its policy paradigm from income-led growth to a market-led one. Considering that businesses are the engine of growth, an emphasis on the market is the right direction.

The income-led growth model pushed by the Moon Jae-in administration caused many side effects. Sharp hikes in minimum wage increased personnel expenses, which led to labor reduction. Low-income jobs vanished and the income gap widened. The Moon administration created tax-paid part-time jobs to buttress employment statistics. It increased its budgets each year and national debt snowballed. It was friendly to labor and would not listen to businesses.

The Yoon administration should step up efforts to reinvigorate market mechanisms. It must reduce tax burdens and lift regulations which suppress business activities. Above all, state liabilities, which approached 2,200 trillion won ($1.7 trillion), cast a long shadow on the national economy. The aftermath of a government made big under President Moon does not only end up with an increased payroll, but also imposes a heavy burden on future generations in the form of pension. The new government ought to try to secure fiscal soundness by reforming the government employee pension system.

Presently, Korea faces grave economic conditions. The state-run Korea Development Institute said in an April report on economic trends that downside risks grew as external conditions deteriorated in the wake of the war in Ukraine. A wide array of variables including surging international materials prices, mounting concerns about inflation and US interest rate hikes lurk on the road ahead. The business survey index, which indicates sentiment on the manufacturing industry, fell from 93 in March to 83 in April -- reflecting a continued uncertainty in global markets. Though exports hit a monthly record high in March, the country’s trade balance went into deficit, affected by rising prices of energy and other imported materials. These conditions put a damper on the recovery of the domestic economy. The Yoon administration must devise tools quickly to respond to external variables.

Choo said that the top priority of the new administration was to stabilize prices of living necessities and working-class livelihoods. Consumer inflation for March marked 4.1 percent. It is the first time in 10 years and three months that inflation topped 4 percent. Prices of imported grains are expected to rise in the second quarter, pushing up domestic food prices. Measures to prevent high inflation are urgent. Some international credit rating agencies downgraded South Korea’s economic growth last month to reflect surging international materials prices. The economic policy team of the new government should review carefully Yoon’s election pledge to draw up a 50 trillion won extra budget for COVID-19 relief. Fiscal soundness and prices are issues it cannot give up on.

Inflation has a ripple effect on the whole economy. It shrinks consumption among others. Policies are needed to stabilize the livelihoods of the public, particularly those socially disadvantaged people. The presidential transition committee asked the government last month to lower fuel tax and the government announced a fuel tax reduction. But this is not enough.

Korea’s economic prospects are not so bright. The possible protraction of war in Ukraine is particularly worrisome. Disruption of supply chains due to the pandemic is an unfavorable factor, too. If stagflation -- a combination of recession and high inflation -- becomes a reality, the Korean economy will encounter a major crisis.

The new government must figure out concrete responses to soaring prices, while overcoming the danger of recession with market-led growth policies.