Recent data shows clouds are gathering over the South Korean economy: Exports are falling, industrial output and private consumption remain sluggish, inflation is crawling at its lowest level and fears of deflation are growing.
On top of all this come unfavorable external conditions such as the steep fall of the Japanese yen against the won and the slowdown of major economies like the U.S. and China.
This may force a further reduction of the economic growth forecast for this year, which has already been cut down four times to 3.1 percent. What’s more disturbing is both policymakers and the central bank seem to be optimistic about the economy as a whole.
But some of the latest data, including exports, is so dismal that it should be enough to dash the officials’ optimism. The nation’s exports, shrinking for the fourth consecutive month, came to $46.22 billion in April, down 8.1 percent from the same month last year.
Officials attributed the sluggish shipments to the slowdown in global trade, low oil prices and the weak yen, but the deepening slump in the country’s economic growth engines should be a big cause for concern.
The low inflation is also casting clouds on the economy. Consumer prices grew at less than 1 percent for the fifth month in a row in April. The consumer price index is unchanged from the 0.4 percent growth tallied for March, which was the lowest increase since July 1999. Excluding the effect of the cigarette price hike, the country’s consumer prices fell last month from a year earlier.
This low inflation bolsters fears of deflation, which would damage asset values and cause confusion in the financial sector and the overall economy. Under such a situation, economic players like businesses and households have no choice but to refrain from investment and consumption.
That both exports and domestic demand remain lethargic means that the economy cannot get back onto a recovery path without well-orchestrated measures.
The most urgent thing is to boost exports. These measures could include efforts to boost shipments to China, which takes about one-quarter of Korea’s exports. Both the government and businesses should develop new products targeting China and other overseas markets and expand markets for existing export items.
We may need aggressive fiscal and monetary policies, as well as strong political leadership. But what we witness is the opposite, as in the case of Deputy Prime Minister and Finance Minster Choi Kyung-hwan.
Choi, who concurrently holds a parliamentary seat, said recently that he has been the chief economic policymaker for almost 10 months and that he still has to think about going back to politics. This means that he could resign ― as early as the end of this year ― to run in next April’s general election. It would be strange if the economy performs well when the man behind its wheel is only thinking about his own political career.
