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(EDITORIAL from Korea Times on Jan. 28)

All News 07:10 January 28, 2016

Trapped in low growth
Time to take innovative measures to reverse trend

The Korean economy grew an anemic 2.6 percent last year, the lowest in three years. It was the third year in the last five of growth below 3 percent and fell far short of our potential growth rate presumed to be at least 3 percent.

This dismal figure had been anticipated, but there are growing signs that Asia's fourth-largest economy may be caught in a low-growth trap.

Last year's moribund growth is attributed largely to sluggish exports. Growth of exports edged up 0.4 percent, the lowest rise since minus 0.3 percent in 2009 right after the global financial crisis. Apparently affected by the export slowdown, growth of manufacturing slowed from 4 percent in 2014 to 1.4 percent last year.

Instead, consumption managed to prop up the sagging economy thanks to an array of stimulus measures, including interest rate cuts, supplementary budgets and Korea Black Friday discount events.

Private consumption grew 2.1 percent, up from the 1.8 percent in 2014, and construction investments were up 4 percent. But the construction industry became a major drag as investments in the sector dipped 6.1 percent in the October-December period due largely to the dwindling property boom.

Even more disheartening is that this year's prospects are not bright, either, given China's slower growth, low oil prices and possible economic turmoil in emerging economies in the wake of America's rate hike in December. For this year, the Ministry of Strategy and Finance and the central Bank of Korea predicted growth of 3.1 and 3.0 percent, respectively, but most private think tanks expect growth to remain in the 2-percent range.

On the domestic front, there are also a host of negative factors such as chronically weak domestic demand resulting from the rapid aging of the population and snowballing household debt.

What concerns people about low growth all the more is that Korea's structural problems, including falling productivity and sluggish corporate investment, are as serious as those in Japan, which is still struggling with the aftermath of its ''lost two decades.''

The Bank of Korea estimates Korea's growth potential to be 3-3.2 percent annually for the 2015-18 period, but private researchers see it at 2.5-2.7 percent. Considering that actual growth rates usually fall short of their potential rates, this means that it will be hard for Korea to achieve growth of 3 percent or higher.

But Korea can ill-afford to tolerate such low growth rates, given its dire need to provide jobs for college graduates and meet surging fiscal demands for welfare and national defense. After all, it's imperative that Korea reverse its low-growth trend by all means.

In the short term, the government should do whatever it can to push up growth by carrying out its existing economic policies faithfully.

What's even more important though is to overhaul our fundamental system through structural reform, even if it takes much time. That would require innovative measures, say, in relation to women's participation in economic activity.
(END)

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