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(EDITORIAL from The Korea Times on July 28)

All News 07:01 July 28, 2016

Growth deadlock

The Korean economy showed feeble signs of improvement in the second quarter of the year, but failed to escape from the quagmire of low growth.

According to the Bank of Korea, gross domestic product grew 0.7 percent in the April to June period from the previous quarter. This marks a slight improvement from the 0.5 percent gain in the first three months of this year, but GDP growth has still stayed below 1 percent for three quarters in a row since the fourth quarter of last year.

Concerns are growing that low growth is never a temporary phenomenon and might be prolonged.

Private consumption rose 0.9 percent, marking a turnaround from a fall in the first quarter. Investment in plants and equipment also increased 2.9 percent after plunging 7.4 percent in the January to March period. Given that both consumption and investment were excessively sluggish in the first quarter, however, it's hard to put much weight on it. Consumption, in particular, was attributed largely to sales tax cuts on car purchases.

Exports, which account for nearly half of Korea's economic growth, grew 0.9 percent from the first quarter on increased overseas demand for semiconductors and chemical products, although they continued their decline year-on-year.

Most worrisome is that the growth outlook for the rest of the year is darker. The central bank has already lowered its growth forecast for this year from 2.8 percent to 2.7 percent, warning against greater downside risks arising from Brexit, the expansion of trade protectionism, chilly Korea-China ties and a likely global currency war.

The Ministry of Strategy and Finance hopes that the planned 28 trillion won stimulus package, which includes an 11 trillion won supplementary budget, will help boost this year's GDP growth by 0.2 to 0.3 percentage points. Nevertheless, the ministry cut its own growth outlook to 2.8 percent from 3.1 percent.

The most fundamental problem is that Asia's fourth-largest economy is grappling with a continuous decline in potential growth rate. It's quite dreadful to hear that our potential growth rate might tumble to the 1 percent range after 2020 from the current 3 percent.

All this explains why Korea should be in a hurry to gather momentum to turn the tide of low growth.

What is needed most then is to speed up the pace of structural reforms aimed at addressing economic ills across the board. Specifically, it will be necessary to finish restructuring the shipping and shipbuilding industries swiftly so that the shock from major job cuts can be cushioned.

Labor reform is no doubt an urgent task, too, but the government's initiative to that effect has made little headway. What is certain is that it will be all but impossible to reverse the trend of low growth without improvements in labor productivity.

Now is the time for all stakeholders to cooperate in nursing the ailing economy back to health. The government should do its utmost to seek cooperation from lawmakers at a time when the opposition holds a parliamentary majority. President Park Geun-hye, in particular, needs to beef up communication with the opposition leadersIt's time for all stakeholders to cooperate

(END)

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