Radical measures needed to avoid economic woes
The presidential office seems to have begun feeling the sense of downside risks facing the Korean economy. It is somewhat fortunate for the office to recognize such risks, though belatedly.
In fact, Cheong Wa Dae has been overly optimistic about the economy, arguing repeatedly that recovery will come in the second half of the year. Taking an optimistic view is oftentimes better than having a pessimistic one, but this could result in getting things wrong, especially if it is out of touch with reality.
On Sunday, senior secretary for economic affairs Yoon Jong-won told reporters that it was hard to rule out the possibility of the downside risks being drawn out as external uncertainties have increased further than expected. He must have started taking the risks seriously.
It is worth noting that Yoon even used the expression "downside risks" more than 10 times. This is in contrast to President Moon Jae-in who said the month before: "The economy will get back on the right track in the latter half of this year."
Yoon's remarks certainly reflect the bleaker economic outlook. The Korean economy contracted 0.4 percent in the first quarter of the year from the previous quarter, its worst performance in a decade. This setback was mainly due to a dive in exports and facility investment. The problem is that the economic downturn might continue further down the road amid the escalating trade war between the U.S. and China.
There are growing worries that South Korea is getting caught in the crossfire of the trade war that is turning into a technology war between the G2 economies. The country is also being forced to take sides. The Trump administration is putting pressure on its Asian ally to join its campaign against China's IT giant, Huawei.
The Chinese government is reportedly threatening to take action if South Korean companies such as Samsung Electronics and SK hynix jump on the anti-Huawei front. The Sino-American row, if prolonged, could put South Korea and its businesses between a rock and a hard place.
However, Seoul is doing little to minimize the fallout of the trade war. Of course, the Moon administration has very limited policy options to ride out the mounting G2 dispute. Yet it cannot deflect criticism for not pooling its wisdom to work out appropriate measures.
On the diplomatic front, the government has made little effort to solve the problem diplomatically. This is reminiscent of Chinese economic retaliation against Korean firms in response to the South's deployment of the U.S. THAAD antimissile system in 2017.
Again the Moon administration has yet to map out any steps to help local businesses muddle through the U.S.-China trade confrontation. Senior presidential secretary Yoon has only called on the National Assembly to pass a 6.7 trillion won ($5.7 billion) extra budget bill aimed at creating jobs and boosting the economy.
The supplementary budget is necessary but not sufficient to tackle the downsides risks and adverse external factors. President Moon's "income-led growth" policy cannot work to reverse the economic slump. This is why Moon and his policymakers should change course and take radical measures to avoid the looming economic woes.
The presidential office seems to have begun feeling the sense of downside risks facing the Korean economy. It is somewhat fortunate for the office to recognize such risks, though belatedly.
In fact, Cheong Wa Dae has been overly optimistic about the economy, arguing repeatedly that recovery will come in the second half of the year. Taking an optimistic view is oftentimes better than having a pessimistic one, but this could result in getting things wrong, especially if it is out of touch with reality.
On Sunday, senior secretary for economic affairs Yoon Jong-won told reporters that it was hard to rule out the possibility of the downside risks being drawn out as external uncertainties have increased further than expected. He must have started taking the risks seriously.
It is worth noting that Yoon even used the expression "downside risks" more than 10 times. This is in contrast to President Moon Jae-in who said the month before: "The economy will get back on the right track in the latter half of this year."
Yoon's remarks certainly reflect the bleaker economic outlook. The Korean economy contracted 0.4 percent in the first quarter of the year from the previous quarter, its worst performance in a decade. This setback was mainly due to a dive in exports and facility investment. The problem is that the economic downturn might continue further down the road amid the escalating trade war between the U.S. and China.
There are growing worries that South Korea is getting caught in the crossfire of the trade war that is turning into a technology war between the G2 economies. The country is also being forced to take sides. The Trump administration is putting pressure on its Asian ally to join its campaign against China's IT giant, Huawei.
The Chinese government is reportedly threatening to take action if South Korean companies such as Samsung Electronics and SK hynix jump on the anti-Huawei front. The Sino-American row, if prolonged, could put South Korea and its businesses between a rock and a hard place.
However, Seoul is doing little to minimize the fallout of the trade war. Of course, the Moon administration has very limited policy options to ride out the mounting G2 dispute. Yet it cannot deflect criticism for not pooling its wisdom to work out appropriate measures.
On the diplomatic front, the government has made little effort to solve the problem diplomatically. This is reminiscent of Chinese economic retaliation against Korean firms in response to the South's deployment of the U.S. THAAD antimissile system in 2017.
Again the Moon administration has yet to map out any steps to help local businesses muddle through the U.S.-China trade confrontation. Senior presidential secretary Yoon has only called on the National Assembly to pass a 6.7 trillion won ($5.7 billion) extra budget bill aimed at creating jobs and boosting the economy.
The supplementary budget is necessary but not sufficient to tackle the downsides risks and adverse external factors. President Moon's "income-led growth" policy cannot work to reverse the economic slump. This is why Moon and his policymakers should change course and take radical measures to avoid the looming economic woes.
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