It's time to regain Korea's competitiveness
The economy is losing growth momentum. Economic indicators have continued to show worse-than-expected performances, raising concerns that the country is mired in a trap of low growth.
According to Statistics Korea, facility investment dropped 1.4 percent in August. The drop was not a temporary phenomenon. It is part of a downward spiral that has been going on for six consecutive months. This is cause for concern, as without any drastic measures it will be hard to reverse the falling trend.
Worse, a majority of domestic manufacturing companies paint a gloomy picture about business conditions down the road. According to a survey of 591 of those firms conducted by the Korea Institute for Industrial Economics and Trade, the business survey index (BSI) for sales in the fourth quarter of this year stood at 95. A BSI reading below 100 indicates pessimists outnumber optimists.
The survey also showed that manufacturers' confidence in both domestic demand and exports each fell to 93 and 96, from 96 and 97, respectively, in the third quarter. The BSI for investments and employment also stood below the 100-point mark at 96 and 95.
In fact, the country's economic growth has recently been led by an export boom in a few industrial fields such as semiconductors. The once-strong sectors of shipbuilding and automobiles have been in the doldrums due to their losing competitiveness. Too heavy reliance on a small number of export items is also dimming economic prospects.
Last week, the International Monetary Fund (IMF) revised Korea's growth projection for next year down to 2.6 percent from 3 percent. The cut came amid shrinking facility investment and domestic consumption. Last month, the Organization for Economic Cooperation and Development (OECD) also lowered its projection from 3 percent to 2.7 percent.
Now the question is how to fend off the slowdown and revive the economy. The answer is simple and clear: to push structural reform that will improve the international competitiveness of the Korean economy.
The country, however, has delayed implementing restructuring to overcome its structural weaknesses. Instead, the Moon Jae-in administration, which was inaugurated in May 2017, has focused on carrying out an income-led growth policy. Regrettably, this has so far failed to fuel economic growth by creating more jobs and bringing more income to workers, especially the poor.
The policy is part of President Moon's inclusive growth philosophy. Ironically, however, it reduced the number of new jobs and offered less income for workers, despite a sharp hike in the minimum wage. It has only triggered a heated debate over its viability.
The Moon government should acknowledge that it has neglected pressing ahead with economic restructuring which is badly needed to revive the country's growth momentum. Korea cannot boost its long-term growth potential without initiating structural reform. Equally important is to promote deregulation and innovation to create more favorable business conditions.
The economy is losing growth momentum. Economic indicators have continued to show worse-than-expected performances, raising concerns that the country is mired in a trap of low growth.
According to Statistics Korea, facility investment dropped 1.4 percent in August. The drop was not a temporary phenomenon. It is part of a downward spiral that has been going on for six consecutive months. This is cause for concern, as without any drastic measures it will be hard to reverse the falling trend.
Worse, a majority of domestic manufacturing companies paint a gloomy picture about business conditions down the road. According to a survey of 591 of those firms conducted by the Korea Institute for Industrial Economics and Trade, the business survey index (BSI) for sales in the fourth quarter of this year stood at 95. A BSI reading below 100 indicates pessimists outnumber optimists.
The survey also showed that manufacturers' confidence in both domestic demand and exports each fell to 93 and 96, from 96 and 97, respectively, in the third quarter. The BSI for investments and employment also stood below the 100-point mark at 96 and 95.
In fact, the country's economic growth has recently been led by an export boom in a few industrial fields such as semiconductors. The once-strong sectors of shipbuilding and automobiles have been in the doldrums due to their losing competitiveness. Too heavy reliance on a small number of export items is also dimming economic prospects.
Last week, the International Monetary Fund (IMF) revised Korea's growth projection for next year down to 2.6 percent from 3 percent. The cut came amid shrinking facility investment and domestic consumption. Last month, the Organization for Economic Cooperation and Development (OECD) also lowered its projection from 3 percent to 2.7 percent.
Now the question is how to fend off the slowdown and revive the economy. The answer is simple and clear: to push structural reform that will improve the international competitiveness of the Korean economy.
The country, however, has delayed implementing restructuring to overcome its structural weaknesses. Instead, the Moon Jae-in administration, which was inaugurated in May 2017, has focused on carrying out an income-led growth policy. Regrettably, this has so far failed to fuel economic growth by creating more jobs and bringing more income to workers, especially the poor.
The policy is part of President Moon's inclusive growth philosophy. Ironically, however, it reduced the number of new jobs and offered less income for workers, despite a sharp hike in the minimum wage. It has only triggered a heated debate over its viability.
The Moon government should acknowledge that it has neglected pressing ahead with economic restructuring which is badly needed to revive the country's growth momentum. Korea cannot boost its long-term growth potential without initiating structural reform. Equally important is to promote deregulation and innovation to create more favorable business conditions.
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