[ED] Rising downside risks

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[ED] Rising downside risks

Global slowdown takes toll on Korean economy

The International Monetary Fund (IMF) and the World Bank have warned of a global economic downturn, calling for stimulus measures. This warning certainly reflects rising downside risks arising from trade protectionism, the U.S.-China trade war and a potentially disorderly Brexit from the European Union.

Wrapping up its spring meetings in Washington, D.C., Saturday, the IMF steering committee called on member economies to act promptly to shore up growth. It is time for countries across the world to step up cooperation to get out of the current slowdown.

The IMF came up with a gloomier outlook. It revised down its 2019 global growth projection to 3.3 percent from its January figure of 3.5 percent. However it kept its projected 2020 growth rate unchanged at 3.6 percent. World trade is forecast to rise 3.4 percent this year, a sizable fall from last year's 3.8 percent.

The problem is the Korean economy is expected to bear the brunt of the global downturn. The country's exports are in a four-month downward march, plunging 8.2 percent last month from a year earlier. This poor performance was the direct result of falling global prices of semiconductors which represented one-fifth of the nation's total exports.

In this situation, skepticism is growing that the government may not meet its growth target of 2.6 percent to 2.7 percent this year. The Bank of Korea is scheduled to announce the first-quarter economic growth rate next week. Economists predict the rate will drop to as low as zero, hitting the lowest since the fourth quarter of 2017. Pessimists even fear a negative growth.

What is more worrisome is that production, investment and consumption have already begun to fall. Labor productivity in the manufacturing sector has failed to catch up with wage hikes, undercutting the price competitiveness of Korean goods.

In a nutshell, the Korean economy is increasingly losing its steam. If government officials and businesspeople do not take radical measures to jumpstart the slumping economy immediately, the country will fall into economic woes.

Last month, an IMF delegation recommended the Seoul government adopt expansionary fiscal policy to stimulate the economy. It called for a supplementary budget of up to 0.5 percent of the GDP, or 9 trillion won ($7.9 billion). The Moon Jae-in administration is in the process of drawing up an extra budget, accepting the IMF call.

Yet the budgetary scheme is only a necessary condition, but not a sufficient one for economic recovery. This explains why the government should take more comprehensive and fundamental measures to find new growth engines such as artificial intelligence, big data and autonomous vehicles.

The country cannot strengthen its international competitiveness without promoting deregulation and innovation to take the initiative in the Fourth Industrial Revolution. It is also urgent to push for structural reform to overcome the economy's underlying weaknesses.

Now the Moon administration should overhaul its "income-led" growth policy which cannot solve the aggravating economic problems. It needs to admit to policy blunders and map out a new strategy to bring an economic turnaround.



Global slowdown takes toll on Korean economy

The International Monetary Fund (IMF) and the World Bank have warned of a global economic downturn, calling for stimulus measures. This warning certainly reflects rising downside risks arising from trade protectionism, the U.S.-China trade war and a potentially disorderly Brexit from the European Union.

Wrapping up its spring meetings in Washington, D.C., Saturday, the IMF steering committee called on member economies to act promptly to shore up growth. It is time for countries across the world to step up cooperation to get out of the current slowdown.

The IMF came up with a gloomier outlook. It revised down its 2019 global growth projection to 3.3 percent from its January figure of 3.5 percent. However it kept its projected 2020 growth rate unchanged at 3.6 percent. World trade is forecast to rise 3.4 percent this year, a sizable fall from last year's 3.8 percent.

The problem is the Korean economy is expected to bear the brunt of the global downturn. The country's exports are in a four-month downward march, plunging 8.2 percent last month from a year earlier. This poor performance was the direct result of falling global prices of semiconductors which represented one-fifth of the nation's total exports.

In this situation, skepticism is growing that the government may not meet its growth target of 2.6 percent to 2.7 percent this year. The Bank of Korea is scheduled to announce the first-quarter economic growth rate next week. Economists predict the rate will drop to as low as zero, hitting the lowest since the fourth quarter of 2017. Pessimists even fear a negative growth.

What is more worrisome is that production, investment and consumption have already begun to fall. Labor productivity in the manufacturing sector has failed to catch up with wage hikes, undercutting the price competitiveness of Korean goods.

In a nutshell, the Korean economy is increasingly losing its steam. If government officials and businesspeople do not take radical measures to jumpstart the slumping economy immediately, the country will fall into economic woes.

Last month, an IMF delegation recommended the Seoul government adopt expansionary fiscal policy to stimulate the economy. It called for a supplementary budget of up to 0.5 percent of the GDP, or 9 trillion won ($7.9 billion). The Moon Jae-in administration is in the process of drawing up an extra budget, accepting the IMF call.

Yet the budgetary scheme is only a necessary condition, but not a sufficient one for economic recovery. This explains why the government should take more comprehensive and fundamental measures to find new growth engines such as artificial intelligence, big data and autonomous vehicles.

The country cannot strengthen its international competitiveness without promoting deregulation and innovation to take the initiative in the Fourth Industrial Revolution. It is also urgent to push for structural reform to overcome the economy's underlying weaknesses.

Now the Moon administration should overhaul its "income-led" growth policy which cannot solve the aggravating economic problems. It needs to admit to policy blunders and map out a new strategy to bring an economic turnaround.





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