Late interest rate cut, insufficient domestic demand stimulus… Financial support is focused on small business owners.

Domestic public and private think tanks assessed that the base interest rate cut was too late and that a one-time 0.25% point cut was not enough. The prevailing opinion is that sluggish domestic demand should be overcome through additional interest rate cuts.

Jeong Cheol, director of the Korea Economic Research Institute, said, “The factor that made our country’s economy most difficult this year was sluggish domestic demand due to high interest rates. As the high interest rate trend prolonged, the financial soundness of the private sector deteriorated and acted as a factor limiting consumption and investment.” .

Kyu-cheol Kyu, head of the economic outlook office at the Korea Development Institute (KDI), also emphasized, “Since the source of sluggish domestic demand is high interest rates, we need to lower interest rates to restore domestic demand.” KDI has judged that domestic demand has been sluggish for 11 months from December last year to this month.

A more drastic interest rate cut is needed to overcome sluggish domestic demand, but it is not easy to lower it further within the year due to concerns about household debt and overheating of real estate.

LG Management Research Institute said, “Considering sluggish consumption and a decline in investment, interest rates need to be lowered further, but it seems likely that the Bank of Korea will judge that there is no significant need for further cuts.”

The problem is that it is difficult to pour in finances to revive domestic demand. As less taxes are collected this year, a tax revenue collapse of approximately 30 trillion won is expected. As of August, the managed fiscal deficit amounted to 84.2 trillion won.

The central government’s debt has already exceeded the target of 1,163 trillion won at the end of this year, increasing to 1,167.3 trillion won. While growth of 0% in the third quarter is likely, growth in the fourth quarter cannot be guaranteed.

Director Jeong said, “Price uncertainty is still high due to public utility rate increases and international oil price instability from the Middle East. In a situation where the direction of monetary policy has shifted from austerity to easing, expansionary finances are likely to increase the pressure to increase prices,” adding, “For all citizens.” He emphasized, “It is desirable to avoid providing support in the form of cash distribution and provide support selectively to vulnerable groups such as small business owners, self-employed people, and marginal enterprises.”

Kwon Nam-hoon, director of the Korea Institute for Industrial Economics and Trade, also said, “Considering the increase in national debt and the lack of tax revenue, fiscal investment must be approached with great caution. Even if finance is invested, it is desirable that it be at an essential level in the form of accompanying structural reform.”

Director Jeong said, “The current monetary policy is tight and fiscal policy is expansionary, but fiscal expansion could further increase this imbalance,” and added, “We can consider a limited amount of fiscal spending for the vulnerable.”

Considering that a war is taking place around the world to strengthen the competitiveness of high-tech industries such as artificial intelligence (AI), semiconductors, and robots, there have been many calls for the Korean government to take an active role.

Director Jeong said, “It is necessary to approach subsidy support for high-tech industries such as semiconductors from the perspective of investment for future food, as opposed to increasing debt due to consumer spending,” and added, “Payment of subsidies to protect and foster specific industries in cross-border trade should be done within each country.” “It is time to refer to academic theories and actual cases that are beneficial to the economy,” he advised.

Director Kwon said, “Investment tax credits only benefit companies when they make actual operating profits, but subsidies are actually helpful because they are received immediately at the time of investment.” He added, “As global competition has intensified, our companies have become the best in technology and production capacity in the world.” “Maintaining the level is of the utmost importance, so various means need to be developed,” he said.

The biggest variables that will determine our economy for the remaining fourth quarter and next year were the information technology (IT) economy, including semiconductors, and the U.S. presidential election. Semiconductors account for 20% of Korea’s total exports. When the semiconductor economy slows down, exports also take a big hit. With Nvidia’s recent sluggish orders in the U.S. and poor performance forecasts for next year, the theory that the semiconductor market is at its peak is spreading, making the government very nervous.

Director Kwon said, “In the short term, the speed of economic recovery in the IT sector is important,” and “I believe that the factor that will have a mid- to long-term impact on a larger scale is the result of the US presidential election. This is related to the direction of US-China relations, the trade environment, and changes in the global conflict situation. “It will have a big impact on other areas as well,” he predicted.

LG Management Research Institute said, “The results of the US presidential election in November will be the biggest variable for our economy,” and predicted, “If former President Donald Trump is re-elected, the US and global economic growth rates will slow down somewhat due to concerns about uncertainty and price instability.” did it

Regarding the future direction of household debt management, there were many opinions that micro-management was needed, taking into account the repayment ability of each borrower rather than the total amount. In order to stabilize the real estate market, it was ordered to expand supply.

LG Management Research Institute said, “There is a large difference in real estate market temperature between Seoul, the metropolitan area, and the provinces,” and suggested, “More microscopic real estate and household debt measures that are applied differently depending on the region and borrower are more appropriate than aggregate indicators such as household debt balance.” did it

Director Jeong said, “Because monetary policy alone has its limits, we need to induce price stabilization by expanding real estate supply.”

[문지웅 기자]