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Foreign economists refute Seoul's rosy outlook
By Park Jae-hyuk
Korea's export-dependent economy will need more time to get back to normal, given that the rest of the world has yet to show any signs of recovery from the COVID-19 pandemic, according to global economists.
After the benchmark KOSPI surpassed its yearly high at around 2,300 points, Wednesday, the Financial Services Commission (FSC) attributed the recent stock market rally to domestic and foreign investors' optimism about the local economy.
"Thanks to our successful preventive measures and policy responses, the economy is expected to show satisfactory growth, compared to other major economies," an FSC official said.
Vice Minister of Economy and Finance Kim Yong-beom also maintained a rosy outlook, citing the month-on-month rises in production, consumption and investment in June.
Loyola Marymount University professor of finance and economics Sohn Sung-won, however, emphasized that "It is too early to be optimistic about the Korean economy." The former senior economist at the White House during the Nixon administration predicted the Korean economy will continue to suffer from the global slowdown.
"Economic growth will contract by 2 percent in real terms in 2020, compared with 2 percent growth in 2019. Growth will recover in 2021, but the strength will depend upon global progress in containing the virus," he said. "Korea does not control its own destiny because of the global pandemic. A second wave of the coronavirus should not be ruled out."
This view was shared by Antonio Fatas, an economics professor at INSEAD, who said that Korea is depending on the rest of the world getting back to normal, even if COVID-19 is under control.
Considering that Europe is likely to contract by up to 10 percent this year and the United States by up to 7 percent, he said Korea is not an exception among economies that are facing difficulties in returning to their normal growth rates. As for the recent rebound here, he attributed this to a "base effect," saying it is natural to see a rebound after a fall in GDP
ING chief Asia-Pacific economist Robert Carnell and Natixis Global Market Research Asia-Pacific chief economist Alicia Garcia-Herrero agreed with this opinion.
Carnell pointed out that the country's year-on-year activity is still very depressed, saying this will likely remain the case until the whole world can get rid of COVID-19 and a vaccine is widely distributed.
Garcia-Herrero noted Korea recorded a 2.9 percent year-on-year decline on the back of weak consumption, investment and trade performance due to the pandemic.
"The manufacturing sector's production and investment is still under pressure from a still weak export performance," she said.
Targeted stimulus to SMEs
Amid the ongoing uncertainties, the foreign economists advised the Korean government to offer financial support particularly to small- and medium-sized enterprises (SMEs).
"To fight the pandemic-related shock, governments are advised to keep a close eye on virus control and channel targeted stimuli to SMEs given their utmost importance in stabilizing the labor market," Garcia-Herrero said.
"The Bank of Korea should cut the interest rate to zero and even consider quantitative easing," Sohn added.
The other experts also agreed with the necessity of expansionary policies for small businesses.
"At this point, the advice is to continue to do the same expansionary policy until we are clearly out of the crisis," Fatas said. "As we return to normal, support should focus on sectors where it will take longer to see the same level of activity."
Carnell said the government should spend a lot of money to ensure firms remain solvent.
"If the government fails to do that, it won't have an economy left to recover once COVID-19 leaves," he said. "This is potentially a once in a lifetime opportunity. Don't waste it."
