[Editorial] Back to basics

Exports, the nation’s main source of growth, are slowing, with a double-dip recession looming in the United States and Europe. But imports are growing fast, making a deep cut in the trade surplus.

As a result, growth in gross domestic product is certain to fall below the 2011 target set by President Lee Myung-bak’s administration. It appears to be a matter of time until the administration recalibrates its growth outlook, though it says it has no plan to revise it downward at the moment.

The bad news is not limited to the nation’s external trade. Even more worrisome is raging inflation. The administration attempts in vain to convince consumers that it is a seasonal aberration and that it will soon be tamed.

Added to these economic blues are snowballing household debt and soaring rents. No Korean should be blamed for feeling that the economy is headed for another crisis. As there is no magic solution to the nation’s worsening economic woes, economic policymakers will have to go back to basics as they try to fend off stagflation.

The nation’s exports in August were tallied at $46.4 billion. Though the figure showed a 27.1 percent increase from a year ago, it meant a sharp decline from $51.45 billion the previous month.

The administration says exports fell as shipments were made ahead of schedule before the summer holiday season began in earnest in August. Nowhere is the slump in the United States and Europe mentioned as the probable cause. Instead, the administration says renewed momentum will be driven into exports this month. But will it blame the Chuseok holiday season if the performance proves to be lackluster again?

Imports, however, grew from $44.2 billion in July to $45.6 billion in August. As a consequence, the trade surplus plummeted from $7.2 billion to a mere $800 million.

Boosting domestic consumption as a means of making up for slowing exports has its limits, with household debt ballooning despite the introduction of new regulations.

Bahk Jae-wan, minister of strategy and finance, says the administration is maintaining the growth outlook as it is. But he adds it may have to review the outlook in the near future. If it lowers the outlook, it will be the second time this year. In June, it revised it from 5 percent to 4.5 percent. It also raised the inflation target from 3 percent to 4 percent.

Another cut in the prospective growth rate, though it should be disappointing, would not come as a surprise, given that the world economy is lapsing into recession again after the 2008-09 Great Recession. What is surprising is that the consumer price index is surging ahead, defying the administration’s earlier prediction that it would be tamed in the second half of the year.

Indeed, the administration’s forecast appeared to be correct when it slid from 4.7 percent in March to 4.1 percent in May. But it began to pick up the next month and rose to 4.4 percent in June and 4.7 percent in July. But few would have expected it would soar to 5.3 percent last month, the highest since August 2008.

As the administration says, food and energy prices were main culprits. But core inflation ― inflation that excludes items with volatile price movements, such as food and energy ― was at 4 percent, the highest in two years and four months.

All things considered, it looks impossible for the administration to meet its goal of keeping price rises below 4 percent this year. Nonetheless, the administration says it is expected to fall below the 4 percent level this month, adding that it is not considering revising this year’s outlook for the consumer price index.

If the administration really means to push inflation below the 4 percent level, all it needs to do is come to grips with reality, lower its growth target and take action accordingly ― by stopping pressure on the central bank to keep its benchmark rate low and letting the Korean currency strengthen against the U.S. dollar.