[Editorial] Conflicting conclusions

The latest view of the South Korean government on the country’s economic recovery appears largely optimistic, which is in contrast with the projections of research institutes both at home and abroad, reminding observers of the old parable of the blind men and the elephant.

Government officials and economic researchers are not exactly blind to the specific twists and turns in the country’s economy, but the way they analyze the current state -- based on the facts they pick and choose -- demonstrates a growing gap in their perspectives.

There is no doubt that a country’s economy is a complex and constantly shifting entity that resists explanation in simple terms. But the public deserves at least a view that is close to a consensus of experts rather than a sugarcoated outlook that distorts the reality like the blind men with the elephant.

On Friday, the Ministry of Economy and Finance said in its monthly economic report that the economy “continues to show signs of recovery” on the strength of solid exports and slow-paced improvement in domestic demand.

“The economy is on a continued recovery path amid overall stability in consumer prices, strong exports, a robust manufacturing sector and facility investment, the ministry said.

At issue is whether domestic demand is indeed in “gradual recovery” mode as the ministry claims. The ministry stressed -- for four straight months -- that domestic demand is improving.

But outside of the government, domestic demand is widely regarded as weak. Sales at department stores and discount chains across the nation have remained slow for months, while retail sales index, a gauge of domestic consumption, shrank in the second quarter, marking the ninth straight decline.

Strong exports led by the chip sector in recent months are not entirely encouraging since government data showed the overall industrial production dropped for the second consecutive month in June. Facility investment also declined 2.7 percent from a year earlier.

Such gloomy figures about domestic demand are prompting research institutes to paint a negative picture about the country’s economic growth. Early this month, the Korea Development Institute, a major state-run think tank, revised down its economic growth outlook for the country this year to 2.5 percent, citing the possibility that weak domestic demand is likely to hurt an export-led recovery. In May, the KDI forecast a 2.6 percent growth for the year.

Foreign investment banks similarly lowered their projections about Korea’s yearly growth to around 2.3 percent. And the Bank of Korea announced in July that the Korean economy contracted 0.2 percent on-quarter in the April-June period.

The Finance Ministry cited the increase in inbound tourists, a rise in real wages and improving consumer sentiment as signs of a recovery in domestic demand in its report. But small and medium-sized companies, and the self-employed complain about the protracted economic slowdown along with the extended period of high consumer prices and burdensome interest rates. According to the Small Enterprise and Market Service, the business index of small enterprises stood at 56.6 this month, marking the lowest level since August 2021.

Local media outlets reported that a growing number of cash-strapped households rush to take loans through credit cards or insurance contracts, a type of loans that is closely linked with a sluggish economy.

The Finance Ministry said there are uncertainties such as geopolitical risks and volatile raw material prices that threaten the Korean economy, but those factors may not be as worrisome as the prolonged weakness in domestic demand, experts warned.

As with the parable of the blind men and the elephant, disputes about the state of the Korean economy can come from different and incomplete perceptions. To narrow the gap in views, the government must avoid falling into a rosy outlook that is removed from the reality.