Policymakers, scholars at odds over economic outlook

By Yoon Ja-young

Policymakers are increasingly voicing optimism about the economy bottoming out, while most private economists remain cautious about the outlook, triggering a dispute over the state of the economy.

Some key economic indices have turned for the better, with industrial output posting a modest rebound.

According to Statistics Korea, mining and manufacturing output grew 3.3 percent in February from a month earlier, marking the biggest rise in six years and five months. The overall industrial output also posted a 0.8 percent gain.

Consumer sentiment is also showing signs of recovery with the consumer sentiment index (CSI) rising to 100 in March.

Strategy and Finance Minister Yoo Il-ho said last week that the economy seems to be stopping contraction.

The government expects both production and consumption to show further improvement in March figures.

Bank of Korea Governor Lee Ju-yeol also showed optimism, citing a rebound of global oil prices and the improving CSI.

However, economists say it is too early to mention a recovery, citing weaker demand from China and other countries, and other structural problems weighing down on the economy.

“There are still uncertainties to being able to say the economy is bottoming out,” said Oh Jung-geun, a professor at Konkuk University. “Most of all, facility investment remains weak, and consumption is also in negative territory.”

Oh also pointed to inventory ratios. “Unsold products are still piling up. Consumption, investment, and inventory all reflect that the economy isn’t in good shape.”

He said the businesses seem to be delaying investment due to the April 13 general election. “They are watching whether the newly formed National Assembly will be favorable to corporate investment or not. The opposition party is talking about raising corporate taxes while the ruling party is considering raising the minimum wage.”

He said the government should be concerned over the valuation of the Korean currency. “As the won is over-valued against the Japanese yen, exporters are hurt. This is leading to poor investment, less jobs and little consumption.”

Ju won, a chief economist at Hyundai Research Institute, was also pessimistic about the economy bottoming out.

“Except for the CSI which rose to 100, there doesn’t seem to be any especially positive signs,” he said, pointing to no growth in investment.

He added that despite the good CSI, the real economy is still in bad shape. “The index sometimes doesn’t reflect the real economy.”

Ju said the government should focus on exports which could lead to a recovery while boosting domestic consumption. “It will be difficult for exports to immediately rebound. The government should take short-term and flexible measures to overcome the lack of demand overseas, actively using the Korea-China free trade agreement as well as focusing on the public sector market there.”

Exports have fallen for 15 straight months up to March, although the contraction rate fell to a single digit of 8.2 percent last month from double digit falls.