[Editorial] Warning signs

By Korea Herald

Government must not miss timing to tackle persistent business downturn

  • Published : May 15, 2018 - 17:54
  • Updated : May 15, 2018 - 17:54

An array of economic indicators from inside and outside the country are sending warning signs of persistent downturn.

According to composite leading indicators released by the Organization for Economic Cooperation and Development on Sunday, Seoul’s reading skidded for 10 months in a row from 100.9 points in April 2017 to 99.76 points in February 2018.

The last time South Korea’s CLI had dipped below 100 was in September 2014, when it stood at 99.8.

The Paris-based OECD uses the index to gauge economic conditions six to nine months down the line. A reading above 100 translates into the economic sentiment expecting an expansion, while numbers below the mark indicate a contraction.

In contrast, the average OECD index has been rising since July 2016. It was 100.12 points in February.

Statistics Korea released gloomy industrial production data on the same day.

The nationwide industrial output shrank 1.2 percent month-to-month in March, marking the sharpest fall since January 2016.

The manufacturing sector, among others, was in a slump. Production decreased in all three major manufacturing industries -- 12.5 percent in car industry, 24.5 percent in shipbuilding industry and 2.7 percent in steel industry.

The average manufacturing operation ratio dropped 1.8 percentage points to 70.3 percent, the lowest since March 2009.

According to OECD statistics, Korea’s service exports decreased 7.6 percent in 2017 from a year earlier.

Korea was the only OECD country to see its service exports decline last year.

In terms of service export growth, Korea ranked 11th in 2014 and fell to the bottom 35th in 2017 among OECD members. Its service export growth remained negative for three successive years.

Wednesday marks the first anniversary of the job committee launched under President Moon Jae-in’s first instruction after taking office.

The panel chaired by Moon himself vowed to increase employment in both quality and quantity by coordinating job-related policies of all ministries. But employment indices are embarrassingly poor even for publicizing the anniversary.

According to the committee website Sunday, the jobless rate rose 0.4 percentage points from a year earlier to 4.5 percent in March. The youth jobless rate also went up 0.3 percentage points to 11.6 percent. The proportion of non-regular workers increased 0.1 percentage points to 32.9 percent. The job situation worsened in both quantity and quality.

Employment is falling off a cliff in manufacturing, which is the foundation of the Korean economy and industries. The number of regular employees in manufacturing decreased for the third straight quarter in the first quarter of this year. The sliding manufacturing industries are all the more worrisome given the ill-boding Korean business prospect as evidenced by a continued fall of its composite leading index.

Loss of economic momentum will have a negative impact on employment and growth. Weaker manufacturing will make it hard to develop new growth industries based on manufacturing.

Measures are needed to raise the competitiveness of key industries, but the Moon administration has not come up with effective industrial polices yet.

The service industry must be deregulated to increase its added value, but the government is going in the reverse direction. It has put pressure on retailers, franchisers and other service businesses through tangible and intangible regulations.

Eventually, stable jobs can be created in manufacturing and high value-added service industries.

Current unemployment problems stem from a combination of various factors, including an excessive push for direct hiring of all outsourced non-regular workers as regular workers and a sharp rise of hourly minimum wage.

A rollback in labor reforms and a corporate tax hike have damaged management efficiency and increased the burden on companies.

The government has added public-sector jobs with taxes, while seeking to grow the economy with taxes. These are nothing more than a quick fix which will only burden the people.

The Ministry of Strategy and Finance on Friday assessed the current Korean economy positively, saying it shows a continued overall recovery. However, an array of indicators seem to point in a different direction.

The government must not miss the right timing while looking away from clear signs of crisis.