Rosy economic indicators veil structural problems

Korea posted a current account surplus for 43 consecutive months in September. Figures from the central bank showed the country’s cumulative current account surplus in the first nine months of the year amounted to $80.6 billion, slightly below the record high of $89.2 billion tallied in the same period of last year.

Many economists, however, indicate it is detached from real economic conditions to say these indicators point to a meaningful recovery of Asia’s fourth-largest economy. They caution the seemingly positive indexes may lead to an illusory view of the economy, which is being held back by structural problems that undermine its growth potential.

“We need to ask ourselves whether the economic indicators will keep the current trend when external risks from China’s slowdown and possible U.S. interest rate hikes take a more concrete shape,” said Lim Hee-jung, a senior researcher at the Hyundai Research Institute.

It has been noted by economists that the extended streak of monthly current account surplus reflects a complex of constraints on the Korean economy, which include aging population, sagging domestic consumption and the transfer of production facilities abroad. Imports have been shrinking at a faster pace than exports, contributing to a continuous increase in the country’s trade account surplus.

Moreover, Korea’s ballooning foreign-exchange reserves have strengthened the value of its currency, weakening the competitiveness of its manufacturing exporters.

The rebound in industrial output and GDP growth is also seen as resulting largely from a base effect after economic activities were hit hard by the Middle East respiratory syndrome outbreak in the second quarter.

From this critical view, it is far from good news that the country’s savings rate has continued to rise in recent years. The percentage of disposable income saved by Korean households rose from 3.42 percent in 2012 to 4.9 percent in 2013 and 6.09 percent last year. A survey by Statistics Korea showed the rate of growth in household spending lagging behind an increase in household income over the past three years, suggesting Korean consumers are tightening their wallets out of concern over future uncertainties.

Economists also appear to have been unimpressed by government data showing the country’s employment rate increased from 58.7 percent in January to 60.9 percent in September. They indicate the improved figure should not detract attention from a continuous rise in the number of temporary and part-time jobs and a widening wage gap between regular and nonregular employees.

The public also seem puzzled with a report released by the state statistical office this week, which said the country’s consumer price index climbed by 0.9 percent from a year earlier in October. The figure marked the sharpest increase since the 1 percent growth recorded for November 2014. With grocery shopping getting more expensive and housing rent soaring, however, many people found it difficult to accept that consumer prices grew by less than 1 percent for 11 months in a row.

Experts note government policymakers should take care not to be distanced from real economic conditions by overestimating the implication of rosy indicators susceptible to many downside risks.

“The government should be persistent and consistent in implementing specific measures to bring concrete results, while suggesting a clear policy direction,” said Lim at the research institute.

Regardless of how economic indicators turn out, economists agree, strenuous efforts should be made incessantly to enhance the competitiveness and efficiency of the economy through drastic deregulation and structural reform.

By Kim Kyung-ho (khkim@heraldcorp.com)