Gov't urged to heed external warnings about economy'
By Kim Bo-eun
Just as history repeats itself, so do economic crises.
All are caused by different triggers but they have one thing in common ― in every crisis, governments and policymakers lacked a sense of urgency and ignored external warnings.
This was the case when the Asian Financial Crisis hit Korea in 1997-1998. At the time concerns about Korea's economy had prevailed, but Cheong Wa Dae and the government did not take these seriously.
The current situation is far from crisis but the Moon Jae-in administration's "blind optimism" is unnerving many Koreans. Despite all the data pointing to a downturn, the government is showing a tendency to focus on the positive aspects of the situation, while turning a blind eye to outside warnings and potential pitfalls.
Amid the worsening data, a number of international organizations have issued a series of warnings on the Korean economy, citing unproductive policies and falling exports caused by a global slowdown.
The International Monetary Fund's (IMF) Korea mission, which assessed the local economy on a visit earlier in March, warned of growing economic headwinds facing Asia's fourth-largest economy.
"Korea is facing short- and medium-term headwinds to growth, which requires policy action," the IMF said in its consultation report, calling for the country to draw up a large-scale supplementary budget.
Moody's Investors Service lowered its 2019 growth outlook for Korea recently to 2.1 percent from a forecast of 2.3 percent last November citing slow demand for semiconductors and negative effects from domestic policies such as the minimum wage hike. This is well below the Bank of Korea's prediction of 2.6 percent.
However, Cheong Wa Dae and the government are not taking these voices seriously, claiming the economy is on the right path toward recovery.
President Moon himself said, "It is fortunate that Korea's economy has shown improvements in various aspects amid dark forecasts for the world economy."
'Everything in wrong direction'
Experts said the government's awareness of the economic situation is far from reality, calling for Cheong Wa Dae and the economic ministries to take these voices more seriously.
"I agree with the comments made by the organizations. Everything seems to be going in the wrong direction for the Korean economy," said Sohn Sung-won, an economics professor at Loyola Marymount University.
"Korea is an export-dependent economy. Unfortunately, the global economy, including Korea's major export destinations such as the U.S., China and Japan, is experiencing a slowdown."
Sohn, a former White House economic adviser, said Korea's domestic economic policies aren't helping.
"The Moon administration's distribution-oriented policies and new regulations have not helped economic growth and job creation," he said.
Yun Chang-hyun, an economist at the University of Seoul, echoed Sohn's view, saying, "These negative assessments and forecasts are not groundless. The government needs to listen to the warnings."
According to data from the Korea Customs Service, Korea's exports fell 4.9 percent in the first 20 days of March from a year earlier due to a plunge in external shipments of semiconductors. Chip exports fell 25 percent during the period.
What is of more concern is that the performance of major conglomerates driving Korea's growth has slowed.
On Tuesday, Samsung Electronics, the nation's top tech firm, said it was expecting an earnings shock for the first quarter, due to a sharp decline in memory chip and display panel prices.
Data from market tracker FnGuide showed the latest market consensus on Samsung Electronics' operating profit for the January-March period stood at 8.3 trillion won ($7.3 billion), down 46.8 percent from a year earlier.
Reflecting these circumstances, global credit ratings agency S&P Global stated in a report published a week ago that Korean companies are entering a credit down-cycle, due to their aggressive financial policies as well as slowing demand for semiconductors and lingering macroeconomic uncertainties.
Time for policy shift
Troy Stangarone, a senior director at the Korea Economic Institute, said Korea is becoming more vulnerable to uncertain economic headwinds, citing a decline in exports stemming from U.S.-China trade tensions and the decline in semiconductor exports.
"Economies are slowing in China and Europe, while the Fed in the U.S. has shifted from an aggressive series of interest rate hikes to seeing no need to raise rates as the U.S. economy is expected to slow as well," he said.
"All of these and other factors are weighing on the Korean economy."
Against this backdrop, experts stressed now is the time for the government to modify its growth strategy to prevent the economy from slipping further into a downturn.
"Korea's economy is in a bad situation due to the fall in semiconductor exports, and domestically, the rise in labor costs following the minimum wage increase," said Sung Tae-yoon, an economist at Yonsei University
"Moody's lowering of Korea's economic growth rate reflects these circumstances. The government needs to perceive the worsening circumstances and make a shift in policies. It needs to focus on removing uncertainties for corporations in doing business."