The Korean economy faces enormous challenges this year, from the protracted coronavirus pandemic to stagnation. First of all, it is not certain that the pandemic will really end. If continued until the end of this year, sluggish consumption and production could push Korea into a low growth trough. The government is targeting 3.1% growth this year, but private research institutes are only forecasting growth of around 2%.
Another risk is inflation. It is possible that consumer prices will rise even more this year after rising at the highest rate in a decade in 2021. The excess global liquidity resulting from quantitative easing programs around the world to cushion the impact of the coronavirus pandemic as well as soaring commodity and world prices supply chain disruptions amid mounting tensions between the United States and China could fuel inflationary pressures. Fiscal austerity in the United States is like a time bomb for Korea, which has seen household debt hit a record high. Sharp hikes in interest rates could strain millions of households that have taken out loans and burst real estate and property bubbles.
But the ultimate danger is posed by political responsibilities. The presidential candidates are trying to outdo themselves with populist economic policies. The ruling and opposition parties are pledging tens of trillions of won without carefully weighing the fiscal impact (US $ 1 = 1,189 W). Raising budget spending at a time when consumer prices are skyrocketing is like igniting gasoline. We could end up in uncharted territory if the tax debt, which already stands at 100 billion won, continues to soar.
The government must remain sane at a time when political fervor is straining the economy. It is the responsibility of the Moon Jae-in administration to maintain fiscal health until the end of his term in early May, even if presidential candidates pledge to pay money to voters. Is it really too much to ask of a president who has nothing more to lose?
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