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(EDITORIAL from Korea Times on Aug. 3)

All News 07:17 August 03, 2018

Lack of investment

The Korean economy has just shown another sign of slowing down. According to Statistics Korea, the nation's industrial output in June dropped 0.7 percent from May, marking the first negative growth in three months. Facility investment was also down 5.9 percent over the period, registering a decline for four consecutive months. The four-month downward spiral is the first in 18 years since the September-December period of 2000.

A recent Bank of Korea report also confirmed sluggish investment. Businesses' capital spending slid 6.6 percent in the second quarter of the year, turning around from a 3.4 percent increase in the first quarter. Investment is a leading indicator that forecasts the business trend ahead. Shrinking investment makes it difficult for the economy to grow, pulling down job creation, too.

The state statistical office said the massive equipment investment in recent months, led by semiconductor makers, is now undergoing a short-term fix. However, private economists cite more complex reasons for the investment slump, noting the economic cycle has entered into a contracting phase.

The external environment will be of no help, either, as seen by the U.S.-China trade war, a crisis in some emerging economies and the rise of the U.S. interest rate. At home, the higher minimum wage and the shortened workweek will serve as cost-push factors, dampening investment zeal further.

Like it or not, the nation has few other choices but to depend on massive capital spending by family-controlled conglomerates called chaebol. These large business groups have not been without problems, such as price fixing, heavy-handed squeezing of suppliers and the transfer of management control in irregular ways.

Still, few can deny they have contributed significantly to Korea's spectacular economic growth. It is time for the Moon Jae-in administration to take this positive aspect into account. The government needs to come up with incentives to encourage large businesses' investment through various policy supports, including bolder deregulation.

Deputy Prime Minister Kim Dong-yeon is likely to visit Samsung Electronics early this month. We hope the event will be an occasion for the pro-labor Moon administration to change its perception of the business community.

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