Where’s the ‘green light’ on the economy gone?

The rivalling parties must humble themselves and exercise bipartisanship in the face of tough economic challenges.

The economy continued to stumble in the third quarter due to shaky exports. The GDP added a mere 0.1 percent from the April-June period that recorded a 0.2-percent contraction. As the third-quarter performance falls short of the 0.5-percent growth estimated by the Bank of Korea (BOK) in August, chances are low on meeting the annual BOK growth target of 2.4 percent.

Exports fell 0.4 percent from the previous quarter. Shipments of IT-related and non-IT items like cars and petrochemicals fell across the board. The net share of exports minus imports in growth was negative 0.8 percent, meaning that sluggish exports brought down the growth rate by nearly 1 percent. A gain of 0.5 percent in private consumption helped to offset the disappointment on the external front.

Analysts are poised to downgrade growth estimates upon finding the third-quarter performance “shocking.” The slowdown may carry over into next year amid few signs of improvements in the construction sector, a softening in the Chinese economy and the volatility related to the United States depending on the presidential election outcome. If Donald Trump wins a second presidency, the sharp lifting in tariffs could disrupt the trade order.

The presidential office and the Ministry of Economy and Finance all became buoyant when the GDP closed the first quarter with a surprising 1.3 percent growth. The government trumpeted green lights for growth and a return to a solid growth path. So what exactly went wrong?

The government could have hyped up its optimistic view on the economy so as to fend off the opposition party’s demand for a supplementary budget. Because the economy moves on people’s sentiment, over-pessimism can dampen activities. But at the same time, optimism with political design can misguide policy actions.

Choi Sang-mok, deputy prime minister of economy, has sponsored an IR event in New York to pitch the Korean economy ahead of the country’s debut in the World Government Bond Index (WGBI) a year later. To induce foreign capital to Korean assets, the macroeconomy must be well managed and fiscal integrity upheld.

But the fiscal balance is strained amid a tax revenue shortfall of 30 trillion won ($22 billion) estimated for this year. The central bank also cannot easily move to an additional rate cut as it must be mindful of astronomical household debts and a volatile real estate market that can undermine financial stability. With macro-policy options restrained, the National Assembly must support by helping pass economy-related bills quickly and lift regulations. The rivalling parties must humble themselves and exercise bipartisanship in the face of tough economic challenges.