ed Arrested growth

Economy tanking; remedies running out

There are more signs confirming that the economy is mired in a nasty case of arrested development that will probably get worse.

The problem is that there is no perfect solution, and a few remedies that could be effective are not being carried through.

Now it looks increasingly possible that Korea will end up on the same slippery slope that has relegated some Latin American economies to a perpetual cycle of one step forward and one step back, or will go into the same “deep slumber” as Japan did during its lost decade.

One latest sign is a drop in the portion of household income to overall gross domestic product (GDP) by 5.3 percentage points from 1995 to 2014. It was the second sharpest fall among the OECD member countries after Austria. In terms of the ratio, Korea stood at 64.3 percent and was only ahead of Norway, Ireland and the Czech Republic. By comparison, the portion for Korean corporations went up.

An Organization for Economic Cooperation and Development report pointed out that the corporations were not redistributing their added income to households actively enough. This supports a claim that households are not being left enough to spend, while corporations sit on big piles of cash ― which explains why the economy is at a standstill.

The OECD data showed that Japan, which was once called a “poor country with rich companies” at the height of its economic development in the 1980s and ’90s, showed a robust 3.2 percentage point growth, a sign that could mean correcting the inequality.

Also dampening household spending sentiment was a 20-year low in the amount of income from interest on deposits at financial institutions. This was the result of a key rate in the 1 percent range, a step taken last year to boost the economy.

Also shocking was per capita gross national income (GNI) that slipped for the first time in six years. According to the Bank of Korea (BOK), estimated individual income dropped to $27,340 last year, a drop of $731 or 2.6 percent from 2014. Although it represented a 4.7 percent increase if calculated in the Korean won, more shocking was that Korea has failed to overcome the $30,000 threshold for nine years since it entered the $20,000 range in 2006. Japan and Germany took five years to make the jump, while the United States took nine years. All three crossed the mark in the 1990s. Considering an anemic growth trap throughout the world, the prospects for Korea joining them appear gloomier.

Last but not least, a consensus is forming that Korea will not make its target of 3.1 percent growth this year. Investment banks vary in their outlook, but agree in downbeat forecasts. Goldman Sachs revised down its forecast by 0.2 percentage points to 2.4 percent; Morgan Stanley came up with the worst-case scenario of 1 percent growth. Korean IBs forecast 2.2 percent at the lowest.

All considered, the economy will likely get worse with few good signs. On a global scale, China’s economy is expected to tank for some time even if its corrective effort to deal with excesses in financial, manufacturing and property sectors proves successful. Europe’s recovery still lacks vitality. The U.S. appears to be struggling to put the world economy back on track.

Korea’s export-oriented economy does not have the size of domestic consumption or global recovery to kick-start on its own. We hope against hope that the nation will hit the ground running after the April 13 general elections, doubling down on our restructuring effort on a new all-encompassing positive policy prescription. It may be a now-or-never chance.