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(EDITORIAL from Korea Times on July 28)

All News 07:03 July 28, 2022

Gloomy growth outlook
Steps needed to prevent situation from turning worse

The International Monetary Fund (IMF) lowered its global growth forecast to 3.2 percent this year from last year's 6.1 percent due to "gloomy and uncertain" climate. In a report released on Tuesday, the organization also slashed Korea's growth outlook to 2.3 percent for this year, down from 2.5 percent it projected in April. This is lower than 2.6 percent estimated by Asia Development Bank (ADB). The IMF foresaw a gloomier outlook for Korea next year, curtailing the growth rate to 2.1 percent from 2.9 percent.

The institute said the Korean economy will face growing setbacks due to high inflation and low growth coupled with increasing trade shortfalls. It noted the looming economic slowdown in China will exacerbate difficulties for Korea, which sends more than 20 percent of its entire exports to China. In fact, the nation has been registering consecutive deficits in trade with China since May.

There seems to be no particular remedy to tackle the China factor, which also poses risks on many other countries as well as Korea. For instance, Germany, a traditional manufacturing powerhouse, saw its trading with China turn red for the first time in 10 years. The IMF forecast Germany to post growth rates of 1.2 percent and 0.8 percent for 2022 and 2023, respectively.

The Bank of Korea on Tuesday announced the nation's GDP grew 0.7 percent in the second quarter of this year, up from its previous 0.5 percent estimate. Yet the seemingly upbeat growth came as a result of rising consumption only amid sluggish exports and investment. Consumption can possibly turn to a decline, vulnerable to external factors, especially given the ongoing high interest rates paired with soaring commodity prices.

Curbing inflation is most essential to prevent a possible economic downturn. Against this backdrop, the international financial institute recommended governments to go ahead with interest rate hikes and stringent financial policies. It is time for the Yoon Suk-yeol administration to take preemptive steps to brace for the possible advent of an economic crisis.

According to a survey conducted by the Korea Economic Association (KEA) on 39 economists and experts, a sizeable majority of the respondents replied that the nation has entered the initial stage of stagflation, referring to high inflation amid low growth. Two of them even assessed stagflation has already progressed considerably. Given this, overall measures should be taken to prevent the possible economic crisis and diverse social problems such as widening inequality between the rich and poor alongside the growing difficulties of low-income people, buffeted by a decline in income.

We should be fully prepared for the potential economic hardships which will turn for the worse next year. The government should double down on efforts to minimize the possible impact from the economic slowdown. It should initiate belt-tightening policies and speed up reforms of public companies and organizations which have been the target of criticism for their insolvent management.
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