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As it is increasingly becoming clear that the Korean economy is headed for a prolonged period of slow growth due to the global economic slump, the nation should refocus on economic growth and make concerted efforts to keep the economy running.
The nation’s economy is already under the influence of the sputtering global economy. In the World Economic Outlook released Tuesday, the International Monetary Fund cut its growth estimate for Korea this year to 2.7 percent. Its previous forecast, announced only a month ago, was 3 percent.
The economy’s performance is forecast to improve next year, but not in the same fashion as before. Previously, a short downturn was usually followed by a sharp rebound, demonstrating the economy’s resilience.
But such a pattern has become a thing of the past. In the first place, the downturn in the current business cycle is unusually long. According to reports, economic growth has remained below 1 percent for the five consecutive quarters.
As the third-quarter growth rate is also likely to remain in that range, the ongoing slump will be extended to six straight quarters, a new record for the Korean economy.
What is more disturbing is the prospect that the rebound that would come after such a prolonged period of slow growth would be not as sharp as before, mainly because the global economy is unlikely to get out of the woods any time soon.
Korean policymakers have long been hoping for a global economic recovery. But recent data suggests that this is no more than wishful thinking. Most recently, the Brookings Institute said in a report that the global economic recovery has “hit the ropes.”
Citing its Tracking Indices for the global economic recovery, the institute said “growth momentum has dissipated in nearly all major advanced and emerging market economies.”
Recently, central banks of the major advanced economies, including the United States, EU and Japan, have sought to boost their economies by injecting liquidity into financial markets. But these measures, according to the institute, have been unable to reverse the declining growth momentum.
Hence the institute’s grim warning: “In the absence of a broader range of decisive policy measures, the world economy may soon be down for the count.”
The IMF’s chief economist has also offered a gloomy outlook for the global economy. Olivier Blanchard said the world economy would remain fragile until at least 2018 due to the eurozone crisis, debt problems in Japan and the U.S., and a slowdown in China.
“It’s not yet a lost decade,” he was quoted as saying, “but it will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape.“
Under these circumstances, the government should stop waiting for the global economy to turn around and take measures to boost growth and ease the impact of a prolonged downturn on consumers and corporations.
According to a survey, 85 percent of Koreans feel that the national economy has already entered a prolonged period of weaker growth. And about 70 percent of people said they would reduce household spending as part of self-help efforts.
The survey suggests the possibility of a reduction in domestic demand leading to a deepened downturn. In fact, sales revenues of large discount stores and department stores already fell for three months in a row since June, showing that consumers have begun to tighten their belts.
For policymakers, the first priority is to stabilize prices to prevent consumer confidence from dropping further. They also need to double down on efforts to create jobs and help indebted households straighten out their balance sheets.
To create jobs, the government should help domestic corporations increase investment in promising areas. Corporations, for their part, also need to look for innovative ways to tide over an unfavorable business environment.
One example involves Doosan Infracore, which has recently become the first Korean company to issue perpetual bonds. A perpetual bond is a bond with no maturity date. Therefore, it is regarded as equity, not as debt. As such, issuing perpetual bonds is a good way to raise funds in times of uncertainty as it improves the issuer’s financial structure.
Last but not least, presidential candidates are also urged to refocus on economic growth as their pledges on welfare expansion and economic democratization would be difficult to implement if the economy falters.
The nation’s economy is already under the influence of the sputtering global economy. In the World Economic Outlook released Tuesday, the International Monetary Fund cut its growth estimate for Korea this year to 2.7 percent. Its previous forecast, announced only a month ago, was 3 percent.
The economy’s performance is forecast to improve next year, but not in the same fashion as before. Previously, a short downturn was usually followed by a sharp rebound, demonstrating the economy’s resilience.
But such a pattern has become a thing of the past. In the first place, the downturn in the current business cycle is unusually long. According to reports, economic growth has remained below 1 percent for the five consecutive quarters.
As the third-quarter growth rate is also likely to remain in that range, the ongoing slump will be extended to six straight quarters, a new record for the Korean economy.
What is more disturbing is the prospect that the rebound that would come after such a prolonged period of slow growth would be not as sharp as before, mainly because the global economy is unlikely to get out of the woods any time soon.
Korean policymakers have long been hoping for a global economic recovery. But recent data suggests that this is no more than wishful thinking. Most recently, the Brookings Institute said in a report that the global economic recovery has “hit the ropes.”
Citing its Tracking Indices for the global economic recovery, the institute said “growth momentum has dissipated in nearly all major advanced and emerging market economies.”
Recently, central banks of the major advanced economies, including the United States, EU and Japan, have sought to boost their economies by injecting liquidity into financial markets. But these measures, according to the institute, have been unable to reverse the declining growth momentum.
Hence the institute’s grim warning: “In the absence of a broader range of decisive policy measures, the world economy may soon be down for the count.”
The IMF’s chief economist has also offered a gloomy outlook for the global economy. Olivier Blanchard said the world economy would remain fragile until at least 2018 due to the eurozone crisis, debt problems in Japan and the U.S., and a slowdown in China.
“It’s not yet a lost decade,” he was quoted as saying, “but it will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape.“
Under these circumstances, the government should stop waiting for the global economy to turn around and take measures to boost growth and ease the impact of a prolonged downturn on consumers and corporations.
According to a survey, 85 percent of Koreans feel that the national economy has already entered a prolonged period of weaker growth. And about 70 percent of people said they would reduce household spending as part of self-help efforts.
The survey suggests the possibility of a reduction in domestic demand leading to a deepened downturn. In fact, sales revenues of large discount stores and department stores already fell for three months in a row since June, showing that consumers have begun to tighten their belts.
For policymakers, the first priority is to stabilize prices to prevent consumer confidence from dropping further. They also need to double down on efforts to create jobs and help indebted households straighten out their balance sheets.
To create jobs, the government should help domestic corporations increase investment in promising areas. Corporations, for their part, also need to look for innovative ways to tide over an unfavorable business environment.
One example involves Doosan Infracore, which has recently become the first Korean company to issue perpetual bonds. A perpetual bond is a bond with no maturity date. Therefore, it is regarded as equity, not as debt. As such, issuing perpetual bonds is a good way to raise funds in times of uncertainty as it improves the issuer’s financial structure.
Last but not least, presidential candidates are also urged to refocus on economic growth as their pledges on welfare expansion and economic democratization would be difficult to implement if the economy falters.
