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By Kim Jae-kyoung
Finance editor
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In short, Asia's fourth-largest economy is losing resilience, meaning that its growth potential has been declining and it's fast becoming more vulnerable to external shocks.
Korea is underperforming most of its OECD peers, including even larger economies, such as the U.S. and Japan.
According to the OECD report, Korea showed the worst economic performance in the first quarter among 32 members of the wealthy nations' club, with its GDP contracting 0.4 percent from the previous quarter, behind Latvia (-0.3 percent) and Mexico (-0.2 percent).
The nation's financial markets are mirroring this unsavory macroeconomic trend.
The benchmark KOSPI and the Korean won have emerged as two of the biggest losers among major stock indices and currencies since the beginning of this year.
The two pillars of the Korean economy ― exports and corporate investment ― have stayed in the doldrums. Consumer spending is also waning.
In August, Korea's exports plunged 13.6 percent from a year earlier, extending their fall to a ninth consecutive month. Consumer spending shrank 0.9 percent in the same month from a month ago, two consecutive months of declines.
Consumer prices decreased in August from a year ago for the first time in history fanning worries over deflation.
On the overseas front, the situation looks even uglier. The trade dispute between the U.S. and China has shown no signs of abating; while Korea's own trade feud with Japan is further weighing on economic confidence here.
Anxiety was clearly felt in the cautious remarks made by Bank of Korea (BOK) Governor Lee Ju-yeol following a Friday monetary policy committee meeting where the central bank kept its key interest rate untouched at 1.5 percent.
"It is difficult to gauge how changes in external conditions could affect our economic growth," Lee told reporters. "Global trade is contracting as many nations reinforce protectionist measures."
Lee expressed concerns over a global recession, saying, "Fears are growing fast."
Amid the worsening situation abroad, global economic organizations and investment banks have turned even more pessimistic about the Korean economy forecasting Korea's GDP growth to fall below 2 percent this year.
No sense of urgency
Despite a series of warnings from economic experts, President Moon Jae-in and his administration are blindly optimistic, showing no sense of urgency.
At an Aug. 13 Cabinet meeting, Moon said that Korea's economic fundamentals remained strong citing Fitch Ratings' "AA-" rating and labelling pessimistic media reports as "fake news."
However, Moon must be forward-looking, not present-focused. While the global ratings agency maintained its rating, it warned that Korea could become the biggest victim to the U.S.-China trade dispute.
"Our economic model suggests Korea's economy would slow by 2 percentage points in 2020 in this scenario, which would push it very close to recession," Fitch's regional credit officer Dan Martin told The Korea Times.
Everybody agrees that Moon's income-led growth policies aimed at producing more jobs with taxes and redistributing the country's income have good intentions. But they have failed to deliver intended outcomes of offering better lives for middle- and low-income families as the policies are skewed toward distribution rather than growth. Their excessive market intervention should also be blamed.
There are two key urgent tasks for the Moon administration to put the economy back on track. First, it has to admit its policy failures and listen more carefully to experts' voices to modify policies.
Secondly, it should have the private sector play a bigger role in this process. To that end, the government should provide incentives for companies through tax cuts and deregulation.
The government unveiled a new stimulus measure Wednesday relying on taxpayers' money. But it must remember that fostering competition is the key to success in a free market economy. Moon should shift the focus of his growth policies to the private sector so businesses can get more actively involved in economic activities and job creation.
Chances are slim that Korea will face an acute financial crisis similar to the one it experienced in 1997 and 1998 but without imminent policy modification, Korea may follow in the footsteps of Japan that has suffered a decades-long depression. The Korean economy is now like "a frog in a pot of slowly boiling water."
