Bank of Korea Gov. Lee Ju-yeol held a rare breakfast meeting with a group of top corporate executives Friday to call for more investment. He noted that lowering the base rate earlier this month was partly aimed at bolstering growth and hoped that the measure would help businesses increase investment.
On Oct. 15, the central bank cut the rate by a quarter of a percentage point for a second time this year to hit a record low of 2 percent. The rate cut came in step with a massive stimulus package drawn up by Finance Minister Choi Kyung-hwan, who concurrently serves as deputy prime minister for economic affairs.
The BOK governor’s meeting with the heads of major companies was followed by the central bank releasing data showing that the country’s economy expanded by 3.2 percent from a year earlier in the third quarter, dropping from the 3.5 percent recorded in the previous three months. The figure for the July-September period marked the lowest on-year growth rate in five quarters.
The Korean economy grew by 0.9 percent from three months earlier in the third quarter, up from the 0.5 percent on-quarter growth in the April-June period. But sector-by-sector scrutiny reveals structural vulnerability.
Exports, the key growth engine for Asia’s fourth-largest economy, decreased by 2.6 percent from a quarter earlier in the July-September period, marking the first on-year contraction since a 1.1 percent decline in the third quarter of 2013. Manufacturing output also shrank by 0.9 percent.
Private spending increased by 1.1 percent, but this figure is far from impressive, given consumers reduced their expenditure by 0.3 percent in the second quarter in the aftermath of the deadly ferry disaster in mid-April.
What is most worrisome is the sluggish investment. Facility investment by corporations fell by 0.8 percent on-quarter in the third quarter, turning around from a 1.1 percent rise three months earlier.
The latest data from the central bank suggests the economy is unlikely to recover significantly in the near future, despite a package designed to boost investment and consumption. Earlier this month, the BOK trimmed its growth outlook for this year to 3.5 percent from 3.8 percent. It also lowered its forecast for next year to 3.9 percent from 4 percent.
As economists note, it may take some time before the government’s stimulus package and the central bank’s rate cut begin to take effect and help boost economic growth. In fact, most of the fiscal and monetary measures worked out by the economic team under Finance Minister Choi, which are set to inject 41 trillion won ($38.9 billion) into the sluggish economy, have yet to be implemented. The top economic policymaker told lawmakers last week it would “take more time before the economy makes a full-swing recovery.”
Still, the prevalent sentiment seems to be that the recent series of moves have failed to convince people that the economy will achieve sustainable growth in the 4 percent range.
In his remarks to lawmakers, Choi noted it was necessary to push for a short-term stimulus package in tandem with long-term efforts to improve economic structure and competitiveness. Certainly, he sounded sensible and correct.
Since Choi took the helm of economic policy in July, however, little has been done to implement the hard part ― structural reforms ― while focus is being placed on immediate remedies to reinvigorate the economy. A three-year economic renovation plan, which was unveiled by President Park Geun-hye early this year, has been consigned to oblivion.
A specific road map for structural reforms should be drawn up and put into practice in a confident and resolute manner. Lawmakers should also quickly pass bills aimed at helping to bolster the economy and reform its structure.
