[Editorial] Exports and Domestic Consumption Need Boost

As the financial and property markets show signs of recovery, some say the Korean economy will bounce back sooner than expected. The benchmark stock index KOSPI, which plunged to almost 900 in October last year, rose to 1,336 yesterday. The won-dollar exchange rate had once shot up to 1,600 but is now around 1,332. The frozen property market is also showing signs of thaw. This deserves attention since the stock market is often a leading economic indicator despite its volatility.

The “property market effect,” in which rising property prices stimulate the economy, also has psychological influence. Another good sign is the huge trade surplus over February and March.

Many internal and external risk factors still plague Korea, however. As real income and job security decreases, domestic consumption remains sluggish. Given the precarious state of the liquidity market – high credit risk among companies and soaring delinquency rates – the loan market has dried up. Chances are that another crisis from the U.S. and Eastern European economies could affect Korea.

President Lee Myung-bak told a conference to promote trade and investment yesterday, “Our economy has good signs but I think we’re still in the middle of a long tunnel.” This indicates that economic recovery could take more time.

The World Trade Organization predicted that global trade volume will decrease nine percent this year from last year. Korea is a classic example of an export-driven economy whose overseas shipments account for 70 percent of GDP. Korea’s export drop was less sharp than those of Japan, Singapore and other Asian countries largely thanks to the weaker won. Korean companies and the government must prepare for lower price competitiveness if the won appreciates further.

Diversification is needed by finding niche markets in the Middle East, Latin America and Africa, three areas which are relatively less influenced by the global economic crisis than developed countries. They can maintain their competitiveness in times of low exchange rates when they increase quality and technological competitiveness through R&D and streamline their business structures amid the economic downturn.

Korea began investing in its major export items decades ago. The government must offer institutional support to exporters and find promising new markets.

Seoul must maintain and raise export competitiveness while increasing domestic consumption. It must stimulate the domestic market by hastening the deliberation of supplementary budget at the National Assembly and its implementation to boost the frozen market, and raise demand at the same time. The service sector – education, medicine, tourism, retail and consulting – has a lot of room to add value. If the government thinks out of the box, eases regulations, and adopts policies to boost competitiveness, it can attract talented people and money from home and abroad.