ED Growing downside risks

Economic recovery feared to slow down

A key economic indicator is raising concern that South Korea's economic recovery may slow down amid mounting domestic and overseas challenges. On Tuesday, Statistics Korea said the country's industrial output fell 1.9 percent in October from the previous month. The fall was the steepest since April 2020 when output declined 2 percent.

What's worrisome is that the manufacturing sector, the mainstay of the country's economic growth, has been on a downward march for four months in a row. Manufacturing output plunged 3.1 percent in October from September due mainly to a global supply chains bottleneck. The falling number of working days on the back of more holidays also contributed to the fall in production.

Economy and Finance Minister Hong Nam-ki downplayed the setback, saying that overall industrial output rebounded solidly in November. Yet, Hong and other economic policymakers cannot afford to be complacent, given the growing downside risks. They should not overlook such adverse factors as global supply chains disruptions and mounting inflationary pressure.

The country's automobile output dropped by 5.1 percent in October, driven by a shortage of automotive chips. Semiconductor production also shrank 1 percent. The output doldrums of the two major export items is a cause for concern. Some analysts are skeptical about a robust economic recovery down the road. They warn that the economy may lose steam due to a resurgence of the COVID-19 pandemic this winter.

The Bank of Korea (BOK) left its 2021 economic growth outlook unchanged at 4 percent last Thursday when it raised its key interest rate by 0.25 percentage points to 1 percent to fight inflation and check the rise of household debt. However, it will be difficult to see the outlook become a reality if the world economy bears the brunt of the new Omicron variant of COVID-19. It is still unknown if this mutation is more serious than the dominant Delta strain, but it could be more contagious than any other mutant forms.

The abrupt spread of the Omicron variant, which was first detected in South Africa, has rattled global financial markets. The Seoul stock exchange is no exception. The benchmark KOSPI tumbled 70.31 points, or 2.42 percent, to close at 2,839.01 points Tuesday. If the variant becomes more prevalent, its impact on the economy will be more devastating. This could lead to more lockdowns and stricter restrictions on daily life, thus disrupting supply chains further and deepening inflation.

Now the Moon Jae-in administration should mobilize all possible means to prevent the Omicron strain from making inroads into the country. The government must also make all-out efforts to ensure financial and economic stability. Additionally, it needs to engage in active diplomacy to cope with any geopolitical risks such as the escalating Sino-U.S. rivalry. Most of all, it is imperative to work out contingency plans to avoid any unpredictable consequences. All presidential candidates should also focus on discussing how to overcome difficulties and revive the economy. It is not the time for partisan struggles and blame games.