Key economic officials have recently expressed different views on the performance of the Korean economy, leaving market watchers confused about their intended policy direction.
(Yonhap)
Last week saw the three top economic aides to President Moon Jae-in and the central bank head strike different tones on the current state of the economy and the effect of minimum wage hikes on employment.
Finance Minister Kim Dong-yeon, who concurrently serves as deputy prime minister for economic affairs, came forward Thursday to reiterate his view that the Korean economy is on track to recovery.
“I think we need not pay too much attention to what somebody had said,” he told reporters, adding it was too early to judge the current economic situation just based on latest monthly statistics.
His remarks apparently referred to an argument made earlier by Kim Kwang-doo, the vice chairman of a presidential economic advisory panel, that Asia’s fourth-largest economy is entering recession.
It took less than two hours for the latter to write a social media post to rebuff the finance minister’s view.
He claimed the recent statistics reflected structural problems and the statistical trend would be more likely to worsen if the existing structure remains in place. He also raised doubts that there was a will in officialdom to carry out economic policies in a positive manner.
Bank of Korea Gov. Lee Ju-yeol also took a more cautious stance than Finance Minister Kim on the economic trend. Speaking at an event Thursday, he said unfavorable conditions both at home and abroad made it difficult to hold an optimistic view of the economic situation.
Earlier last week, Kim disagreed with Chang Ha-sung, the presidential chief of staff for policy, on the effect of this year’s steep minimum wage hike on the job market.
Answering questions from lawmakers in a parliamentary session, he said it was his belief that the minimum wage increase was having a negative impact on employment. His remarks came shortly after Chang said during a meeting with ruling party officials that various analyses so far had come to the conclusion that employment had not been reduced due to the rise in the minimum wage.
The publicized cacophony among top economic officials deepens concerns about the Moon administration’s ability to push for pertinent policies to settle difficulties faced by the economy.
“What we see now is the lack of communication among key policymakers,” said Ju Won, an analyst at the Hyundai Research Institute, a private think tank, noting such a discord could cause confusion in the market.
The different diagnoses of the economic situation that come a year after Moon took office may be seen as suggesting worries are growing within his government over the relevance of its labor-friendly policies that have sagged corporate activity.
“Any economic policy will lose confidence if it is detached from the current signals of the economy being drawn into recession,” said Kang Sung-jin, a professor of economics at Korea University.
Though downplayed by the finance minister as not reflecting the structural trend, recent economic figures heading downward have raised concerns that the Korean economy is losing growth momentum.
All economic indicators except for retail sales have taken a negative turn in recent months, according to official data.
The country’s industrial output dropped 1.2 percent from a year earlier in March, the steepest decline in five years.
Manufacturing production, in particular, fell 4.7 percent, mainly due to a slump in the car, steel and shipbuilding sectors. Accordingly, factories around the country ran at 70.3 percent on average of full capacity, the lowest since March 2009 when the corresponding figure fell below 70 percent in the aftermath of the global financial crisis.
For the five months since October, manufacturing output continued to decrease except for January when it rose 3.5 percent.
In an indication of further reduction in industrial production down the road, facility investment shrank 7.8 percent on-month in March, marking the first decrease in five months.
A downturn in exports last month deepened worries over the prospect of the Korean economy, which has relied heavily on outbound shipments for growth.
Exports dropped 1.5 percent from a year earlier to $50.06 billion in April, recording the first dip in 18 months.
Finance Minister Kim said the decrease in outbound shipments was attributed partly to a base effect from the unusually large increase in April last year, insisting the country’s exports remain on upward trend.
But experts note Korea’s large manufacturing exporters except for chipmakers have been losing competitiveness in the face of rising trade protectionism and intensifying competition from Chinese rivals.
Since 2014, the country has seen its annual merchandise exports grow at a slower pace than the increase in global trade.
The Moon administration’s effort to bolster employment by expanding fiscal expenditure has proven largely unhelpful, with the on-year increase in the number of new employees decelerating in recent months.
Some commentators say Moon may have to come forward to coordinate different views expressed by his economic aides to prevent them from hampering the effective implementation of policies.
But his adherence to income-led growth drive accompanied by pro-labor measures seems to be fanning the discord.
In his Facebook post criticizing the finance minister’s view, the deputy head of the presidential economic advisory council expressed worry about the social atmosphere dominated by the will to divide, not enlarge, the economic pie and the growing imbalance between labor and management.
In the eye of some observers, it appeared to be the president rather than the finance minister that the post should have addressed.
By Kim Kyung-ho
(
khkim@heraldcorp.com)