The Korea Development Institute, the leading government-funded economic think tank, publishes a report on the nation’s economic outlook twice a year ― in May and November. Based on the November report, the administration sets up its New Year economic management plan in December. If necessary, it revises the plan in June, this time based on the KDI’s May report.
But the KDI is scheduled to publish an interim report later this month, a rare exception, which speaks volumes about the nation’s weakened economy. It is doing this so that the administration will use it as a reference when it revises not just this year’s economic outlook but that of the next year.
The think tank made such an exception in 2009, when the nation’s economy was reeling from the immediate aftermath of the global financial meltdown. In that year, the nation recorded one of the lowest growth rates in recent years ― an anemic 0.3 percent.
Reflecting its concern about the debt crisis in the eurozone, the KDI lowered its 2012 growth outlook, albeit by a small margin, from 3.8 percent in November to 3.6 percent in May. Still, it was more optimistic than warranted, as hindsight shows. It acknowledges the mistake when it says that it erroneously believed Spain would soon start to sort its debt problems out. The administration slashed the growth outlook to 3.3 percent in June from the previous 3.7 percent.
The KDI, which finds the external economic conditions are worse than before, says it is under pressure to revise its growth outlook downward again. Still worse, it says the nation will find it difficult to get back on a normal growth track next year, citing the protracted European crisis and a “fiscal cliff” in the United States as the potential causes of the global slump continuing into 2013. According to a news report, the KDI believes the nation’s growth potential will stay below the 4 percent mark next year as a result.
The unmistakable symptom of the worsening external economic conditions is a sizable decline in the nation’s monthly exports for the second consecutive month in August. Shipments fell 8.8 percent in July and 6.2 percent last month. For a nation that depends heavily on exports for growth, a drop in shipments has serious implications.
The Hyundai Research Institute says gross domestic product will fall 17.1 trillion won short of the target of 323.9 trillion won and the number of people on payrolls will fall 281,000 below the target of 5,033,000, if growth in exports slows to 1.7 percent this year, as it forecasts, from the administration’s year-end target of 7.4 percent.
No wonder, the administration is pressured to revise its 2012 growth outlook. It says it will also have to revise its 4.3 percent growth outlook for 2013.
The administration finds no better occasion to announce the revision than when it submits its 2013 budget request to the National Assembly, no later than Oct. 2 as is constitutionally required.
Now the question is how deep the cuts will be. As it has done in the past, the administration will undoubtedly use the forthcoming report from the KDI as its main reference. But glimpses into the nation’s strained economic capacity can be gained from forecasts by private think tanks, credit-rating agencies and others. They mostly range from 3 percent to 2.5 percent for this year.
Nothing else deserves to take center stage in the public discourse ahead of the presidential election than the slowdown in growth, given its tremendous impact on the lives of the Korean people, ranging from the level of employment to that of household income. Few presidential hopefuls, however, are taking up the issue.
Instead, their concern is focused on an increase in welfare spending. What is ludicrous is that few say with conviction how they will finance their plans. Better informed are many ordinary people that are found to believe growth, not welfare, should be given top priority. According to a recent survey by the Korean Association of Party Studies, growth topped the list of topics that are needed to be pursued as the “zeitgeist” ahead of the presidential election.
Those bidding for the presidency are called on to take this finding seriously and put the issue of boosting growth before anything else in their campaigns.
