Korea Needs a New Economic Blueprint

      December 11, 2014 13:08

      The Korea Development Institute has slashed the country's growth forecast for next year from 3.8 to 3.5 percent. That is lower than the government’s four percent and Bank of Korea's 3.9 percent projection.

      The economy slumped even further in the second half of this year, and if growth slackens further next year, Korea's growth would fall even below its potential economic growth rate of three to four percent, continuing a slump that began in 2011.

      Finance Minister Choi Kyung-hwan was appointed in July this year and took drastic pump-priming measures, including slashing interest rates and easing real estate regulations. But the measures have not had much of an impact. Employment is growing hardly at all while wage growth remains at a virtual standstill and household debts rise.

      External economic conditions are also volatile. Europe is concerned about another economic crisis after the 2008 global financial crisis and 2011 eurozone fiscal crisis. China, meanwhile, is considering lowering its growth forecast from 7.5 to seven percent. On top of that, moves by the U.S. Fed to raise interest rates are sparking jitters. The only respite is low global oil prices.

      Experts forecast the latest slump will last three years at least. As a result, all the talk is now of cost-cutting in order to weather the storm. But if businesses cut spending, the entire economy would feel the impact.

      The government must realize that the current slump is not a temporary blip, but a drawn-out, structural downturn. It must prepare emergency measures rather than focus on fiddling with regulations. Korea needs to retool its entire business landscape in order to prepare for a long winter, while coming up with measures to stimulate private spending. Flexible fiscal policies must be considered to ease the shock of slowed GDP growth. It is time for a blueprint of hope.

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