Starting the engine on revitalizing the economy

The Democratic Party must extend support for the government’s policy outline to put the economy back on track.

The economic slump may be winding down. The government is focusing on revitalizing the economy through recovery in exports. Under the economic policy outline for the second half, the government will concentrate on reinvigorating the economy, stabilizing the public economy and improving economic fundamentals.

The highlight is on the promotion of exports and investment. Any high-tech companies returning home are promised incentives tantamount to at least foreign investors. Revisions to the venture enterprise laws will be pursued to support the industry, and more focus will be put on stimulating the domestic economy, including regional ones. Taxes on the hereditary succession of family businesses will be further eased. Inheritance tax would be exempted for up to 50 million won ($38,431) for adult children to help facilitate their marriage. Policy actions will be taken to ease the ongoing rent crisis. Loan regulations also will be eased for a year to help landlords return the lump-sum deposits (jeonse) they owe to their tenants. But the outline lacked strong deregulations or measures to boost women’s participation in economic activities for the long-term growth potential of the economy.

The government has turned more aggressive to stimulate the economy as prices have stabilized faster than expected. The consumer price gain against a year-ago period has come under 3 percent in June for the first time in September 2021, sharply below 5.2 percent in January.

Despite the relief on the inflationary front, the government has turned grimmer on economic outlook. The Ministry of Economy and Finance predicts GDP growth of 1.4 percent for this year — down from the 1.6 percent estimated in December — owing to sluggish exports in the first half due to poor external environment. Still, the economic movement shows positive signs. The estimated growth of 0.9 percent in the first half will likely pick up to 1.8 percent in the second half. The government predicts a 2.4-percent growth next year.

Despite some upbeat signs, there are many dangers in the Korean economy. Above all, there is no knowing when the war in Ukraine will end and how volatile the global supply chains will become from the confrontation between the United States and China. The U.S. interest rate hike, which may continue in the second half, is another risk. Korean politics could be engaged in a populism contest ahead of the parliamentary elections in April next year. The economic outlook can change at any time. Growth is only possible when external and domestic conditions improve. Voters must elect politicians who place top priority on revitalizing the economy. The Democratic Party must extend support for the government’s policy outline to put the economy back on track.