[Editorial] The economy’s dark side hidden by “surprise growth”

The era of 3% annual economic growth has come a step closer. The Bank of Korea said on the 27th that real gross domestic product (GDP) grew 1.0% in the third quarter, according to its preliminary estimate. Cumulative growth through the third quarter was 3.6% from a year earlier, meaning annual growth would reach 3.6% even if there were no growth in the fourth quarter. If this growth trend continues into the fourth quarter, growth could even top 4% for the year. It is truly surprise growth.
Real gross domestic income (GDI) surged 18.8% from a year earlier, recording its largest increase in 48 years and nine months, since the third quarter of 1977. This means the real purchasing power of the income we earn has increased. Yet people do not really feel that the economy is growing this much. The fact that private consumption actually fell 0.2% is one result. Growth and purchasing power have risen, but consumers are not opening their wallets. The figures and reality are not the same.
In fact, a closer look at the substance of this growth reveals worrying factors. Government consumption has helped underpin growth, and it is not healthy for a single sector—the semiconductor industry—to account for half of that growth. A healthy economy is one in which each economic actor and all industry sectors contribute to growth evenly. Heavy reliance on one sector becomes a problem when conditions in that sector deteriorate.
Another problem is that it is taking a long time for the benefits of growth to spread. Certain industries and companies are booming, and taxes paid by those companies have filled the nation’s coffers, while households overall and other sectors are feeling the chill. This could also be seen as a blockage in the flow of money needed to generate a trickle-down effect.
The economy may appear to be flourishing, but conditions are worsening for ordinary people, small and medium-sized enterprises (SMEs), and small business owners. Rising delinquency rates on household and SME loans are one sign of this. If the benchmark interest rate rises further, the hardship facing vulnerable borrowers will deepen. Polarization is worsening: semiconductor companies are posting record profits, while SMEs focused on the domestic market are struggling to pay interest on their loans.
Growth should lead to reinvestment and distribution. Strong growth, which has been a long time coming, is welcome, but we must examine why its warmth is not spreading properly. The economic foundations for the future will be stronger if the benefits of growth can reach those further down the economic ladder. The domestic-demand base must be strong, SMEs must be thriving, and the number of good-quality jobs must grow. Yet even as we look toward 4% growth, reality is entirely different. The economy looks splendid on the surface, but a closer look reveals a host of daunting challenges.
From this perspective, we must now find solutions to three pressing challenges: domestic demand, the crisis facing SMEs, and employment. Policy must be carefully calibrated so that income generated by growth stimulates domestic demand. For SMEs, even as nonviable businesses are weeded out, policy support is needed to identify vulnerable borrowers and ensure that competitive companies are not driven into bankruptcy by the burden of high interest rates. On employment, the government and businesses must work together to create good jobs that young people want.