Analysts urge President Moon to readjust economic policies
By Park Hyong-ki
The Korean economy is showing clear signs of a further slowdown as companies continue to reduce investment amid low consumer confidence beset possibly by state policy misguidance.
According to Statistics Korea, Tuesday, the country's facility investment dropped 1.4 percent in August from the previous month. It decreased 0.3 percent in July.
Investment in facilities has been falling for six straight months since March, the longest decline in 20 years, the statistics office noted.
Industrial output advanced 1.4 percent on increased production of vehicles and plastics. But the chip industry's investment slowdown weighed down the key index measuring corporate acquisitions of equipment for plant operations and logistical services.
This index is expected to get worse, given semiconductors have been the main growth driver, accounting for more than 20 percent of exports.
Also, the escalating trade conflict between the United States and China is painting a gloomy picture for the future of Asia's fourth-largest economy. As the U.S. upped the tariff ante, the OECD and the Asian Development Bank have revised down Korea's growth forecast.
Also, a survey by the Korea Federation of SMEs showed 50 percent of 300 small- and medium-sized enterprises surveyed between Sept. 14 and 20 said they do not have any investment plans for the fourth quarter of the year. The main reason was weak domestic demand and an increased payroll burden from wage hikes.
Only 15.7 percent responded they would invest, while the rest said they had made no plans yet.
Analysts say the government needs to readjust its policies and realign its priorities for the economy from ground zero by putting less weight on wealth redistribution and more on innovation and regulatory reform.
"Why would companies invest under the pro-labor policy without any consideration for growth in the private sector? The three wheels of innovation, regulatory reforms and labor should be turning at the same time," said Yun Chang-hyun, an economist at the University of Seoul.
Instead, the market is witnessing three different organizations ― Cheong Wa Dae, the Ministry of Economy and Finance and the Fair Trade Commission (FTC) ― bringing out their own "policy colors" separately, he added.
The finance ministry is focused on innovation, the antitrust agency is seeking to further toughen rules on chaebol dealings with their subsidiaries and subcontractors, and the presidential office is pushing forward with income-led growth.
"There is a lack of multiagency coordination to rebuild confidence in the economy," Yun said, noting this comes as a surprise given the three who are running those policies from their respective offices used to know each other when they were in academia.
Finance Minister Kim Dong-yeon was the president of Ajou University; Jang Ha-sung, presidential chief of staff for policy, was a Korea University business professor; and FTC Chairman Kim Sang-jo was an economics professor at Hansung University.
Kim Doo-un, an economist at KB Securities, said the economy has reached its limit with the existing market structure.
He agreed that putting more focus on driving private sector innovation would alter the industrial landscape as Korea once did following the financial crises of the late 1990s and 2008.
"The market has come to the point where it is unable to advance with its existing structure. The policies have to be revised to improve confidence to help make people and businesses think they can lead change," Kim said.
The central bank may cut its growth projection when it holds a monetary policy meeting this month amid the continued onslaught of weak data, he added.
By Park Hyong-ki
 |
According to Statistics Korea, Tuesday, the country's facility investment dropped 1.4 percent in August from the previous month. It decreased 0.3 percent in July.
Investment in facilities has been falling for six straight months since March, the longest decline in 20 years, the statistics office noted.
Industrial output advanced 1.4 percent on increased production of vehicles and plastics. But the chip industry's investment slowdown weighed down the key index measuring corporate acquisitions of equipment for plant operations and logistical services.
This index is expected to get worse, given semiconductors have been the main growth driver, accounting for more than 20 percent of exports.
Also, the escalating trade conflict between the United States and China is painting a gloomy picture for the future of Asia's fourth-largest economy. As the U.S. upped the tariff ante, the OECD and the Asian Development Bank have revised down Korea's growth forecast.
Also, a survey by the Korea Federation of SMEs showed 50 percent of 300 small- and medium-sized enterprises surveyed between Sept. 14 and 20 said they do not have any investment plans for the fourth quarter of the year. The main reason was weak domestic demand and an increased payroll burden from wage hikes.
Only 15.7 percent responded they would invest, while the rest said they had made no plans yet.
Analysts say the government needs to readjust its policies and realign its priorities for the economy from ground zero by putting less weight on wealth redistribution and more on innovation and regulatory reform.
"Why would companies invest under the pro-labor policy without any consideration for growth in the private sector? The three wheels of innovation, regulatory reforms and labor should be turning at the same time," said Yun Chang-hyun, an economist at the University of Seoul.
Instead, the market is witnessing three different organizations ― Cheong Wa Dae, the Ministry of Economy and Finance and the Fair Trade Commission (FTC) ― bringing out their own "policy colors" separately, he added.
The finance ministry is focused on innovation, the antitrust agency is seeking to further toughen rules on chaebol dealings with their subsidiaries and subcontractors, and the presidential office is pushing forward with income-led growth.
"There is a lack of multiagency coordination to rebuild confidence in the economy," Yun said, noting this comes as a surprise given the three who are running those policies from their respective offices used to know each other when they were in academia.
Finance Minister Kim Dong-yeon was the president of Ajou University; Jang Ha-sung, presidential chief of staff for policy, was a Korea University business professor; and FTC Chairman Kim Sang-jo was an economics professor at Hansung University.
Kim Doo-un, an economist at KB Securities, said the economy has reached its limit with the existing market structure.
He agreed that putting more focus on driving private sector innovation would alter the industrial landscape as Korea once did following the financial crises of the late 1990s and 2008.
"The market has come to the point where it is unable to advance with its existing structure. The policies have to be revised to improve confidence to help make people and businesses think they can lead change," Kim said.
The central bank may cut its growth projection when it holds a monetary policy meeting this month amid the continued onslaught of weak data, he added.
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