Time to return to normal economic activities

Nearly two months have passed since the tragic sinking of the ferry Sewol, but the Korean economy is still experiencing lingering “depression.” People have reduced spending while companies have effectively halted marketing activities and introduction of new products. The government’s open pledge to significantly ease misguided corporate regulations and create a new growth engine is on shaky ground in the face of the claim that “deregulations have spawned the tragic Sewol disaster.” Some even say that as the ramifications of the Sewol’s sinking get prolonged, Korea’s “economic clock” has come to standstill.

A May consumer confidence index by the Bank of Korea slipped to an eight-month low of 105 from 108 in April. The industrial activity index for April released by the Statistics Korea also showed retail sales fell by 1.7 percent from the previous month, while service sector production dropped by 1 percent. Conglomerates are enduring shock from contraction of domestic consumption with their internal cash reserves, but neighborhood stores and self-employed merchants are striving to stay afloat.

Korea has posted current account surplus for 26 consecutive months, which is one of few positive signs, but it is premature to feel complacent. Amid the appreciation of the won, the won-dollar rate dropped to the 1,020 won level, while the won-yen rate fell below 1,000 won level. The won’s appreciation has positive effects including a drop in import prices, and easing of financial burden weighing on fathers who send dollars to children studying overseas, but it eats into the competitiveness of Korea’s export prices, which in turn highly likely causes trade balance to deteriorate.

Japan saw its real gross domestic product gain by 1.5 percent in the first quarter of this year from the previous quarter, amid Japan`s continued expansion for sixth consecutive quarters. Some have expressed worries over side-effects from the weakening yen and expansion of liquidity in the market due to the Abe-nomics, but this policy is obviously helping Japan overcome its long-term recession. Furthermore, the ruling Liberal Democratic Party is set to lower corporate tax rate from April next year to encourage companies to invest. The U.S. swung into negative growth of its economy in the first quarter for the first time in three years, but saw various economic indicators rebound in the second quarter. The European Central Bank’s minus interest rate policy, and Spain’s move to cut corporate tax rate by 5 percentage points are also measures aimed at shoring up their economies. These measures are in stark contrast with bids by the Korean political circle that frequently demands a hike in corporate tax rate to mobilize funds for welfare spending.

President Park Geun-hye said recently, “If consumption weakens and economic vitality wanes, it is the low-income households who suffer first before others,” adding, “The government will accelerate the implementation of a three-year economic reform plan, including public sector reform, regulatory reform and the promotion of the service industry.” These pledges should translate into specific actions. As soon as the president nominates the next prime minister, she should promptly reshuffle the economic team including deputy prime minister for economy Hyun Oh-seok, who has lost market trust, while tightening economic policy. The political circle is urged to cooperate in deliberation of bills aimed at galvanizing the economy, which are pending at the National Assembly. It is about time that the people and companies also return their economic activities to the normal mode