Updated April. 23, 2013 07:43
Asian Development Bank recently forecast that the Koreas economic growth rate would be the lowest among major 11 Asian countries. Accounting and consultancy firm Ernst & Young on Monday significantly lowered Koreas expected growth rate to 2.2 percent. These announcements were made only several days after management consulting firm McKinsey & Company said on April 14 in its first report since 1998, "Koreas economic growth has reached the limit." Warnings on the Korean economy have been issued one after another while it is unclear if the Korean government has any solution to this crisis.
The real economy has already been taken its toll. After companies first quarter performances have been released, the market capitalization of 15 major construction companies suffered 4.5 trillion won (4 billion U.S. dollars) loss from "earnings shocks" due to lower-than-expected performances of GS Engineering & Construction and Samsung Engineering. Amid the global economic recession, STX Offshore & Shipbuilding signed a voluntary agreement with creditors and went into a large-scale restructuring. Though department stores` spring sales continued until Sunday, their sales growth remained well below those of last year.
The Japanese economy has started improving in seven years with an increase in sales of department stores and the number of transactions in the housing market. Other Asian countries have shown growth rates of six to seven percents. Only Korea is struggling. Surrounding conditions have grown worse since the launch of the Park Geun-hye government due to North Koreas continued threats of military provocations and a weak yen, both of which have weakened Koreas export competitiveness. As companies report bad performances while the outlook for both foreign and domestic markets is bleak, rumor has it that the so-called May crisis has been spread amid gloomy economic outlook in this spring.
However, the government and politicians do not seem to be aware of the serious situation. The government`s real estate stimulus plan, which was introduced on April 1, have almost stopped the market by continuing argument over the standards for tax exemption for transfer income taxes and acquisition taxes. When the economy is bad, the government needs to encourage companies to invest more. The National Tax Service, however, has announced that it will launch rigorous tax investigations to raise more taxes. Conglomerates have closely followed announcements by the government and delayed investment plans not knowing what the bills for the economic democratization hold.
The government is keep repeating its rhetoric of a creative economy when economic players are unwilling to try anything. Though President Park Geun-hye has called for deregulation Monday to boost company investment, it is not enough. Korea needs a growth strategy encompassing overall economic fields. Japanese Prime Minister Shinzo Abe established an industrial competitiveness counsel participated by company CEOs under the Prime Ministers Office. Economic democratization could be a desirable goal. But without economic growth, no goal can be achieved.