Gov't in dilemma between growth and inflation

The Korea Times

The Korea Times

Finance

Fri, September 29, 2023 | 23:34

Economy

Gov't in dilemma between growth and inflation

Posted : 2023-02-13 16:29

Updated : 2023-02-14 16:43

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho speaks during a meeting with news editors at Korea Press Center in central Seoul, Friday. He said the government's focus on economic policy will be on growth if there are clear signs of inflation being eased. Yonhap

By Yi Whan-woo

Persistently high inflation in the 5-percent range is posing a dilemma for the government in shifting the focus of its 2023 policy from stabilizing prices to spurring economic growth.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said in December that inflation has passed its peak although it is likely to stay at a high plateau for the time being.

In a meeting with news editors, Friday, he also said the government's policy targets will "turn" to economic growth should the country show clear signs of eased inflation.

But a surge in utility prices beginning in January, coupled with planned hikes in public transportation fares by multiple municipal governments, are raising concerns that stubborn upward pressure on inflation still remains.

For instance, consumer prices rose 5.2 percent from in January from a year earlier as heating costs skyrocketed due to a cold spell.

"Under the circumstances, any economic stimulus at the moment can deepen inflationary pressure, can complicate economic risks, and can shatter the government's hope of reviving economy from the second half of the year," Yonsei University economics professor Sung Tae-yoon said.

The professor refereed to the finance minister's forecast that the Korean economy will be "down in the first half of the year, but up in the latter half of the year."

The forecast premises on inflation cooling down from a 5 percent range in the first quarter to a 4 percent range in the second quarter, before decelerating to a 3 percent range in the final six months of the year to meet the government's 2023 target inflation goal of 3.5 percent.

Correspondingly, the government hopes for the economy to grow by 1.6 percent for the entire 2023, driven by the growth in the second half forecasted to be around 1.9 percent.

Stubborn inflation still does not mean the government can pay less attention to growth this year, as the growth momentum is losing steam due to sluggish exports.

Data released by the Korea Customs Service (KCS), Monday, showed the country logged a trade deficit of $4.97 billion in the first 10 days of February.

Such a deficit is stretched from a trade shortfall for 11 straight months, including January when an all-time monthly high trade deficit of $12.69 billion was reported.

"I would say the government should come up with stimulus measures in the second quarter, if the growth slowdown gets more serious in the first quarter than what that the government forecast," said Kim Jung-sik, an economics professor at Yonsei University.

yistory@koreatimes.co.kr