(EDITORIAL from the Korea Times on July 28)

Consumer confidence
It's time to review policy shift to avoid bubble

Consumer confidence is one of the leading economic data that gauges growth
outlook. It is usually good to see improving consumer sentiment, especially when
the nation is grappling with an unprecedented global economic crisis.
Policymakers often stress the importance of consumer and investment psychology as
it has a significant impact on the real economy.
It is a fresh surprise that consumer confidence reached a seven-year high last
month. The Bank of Korea (BOK) said Monday that the consumer survey index rose to
109 in July from 106 the previous month. It is also noteworthy that the index
stayed above the 100-point mark for three months in a row. A reading of 100 or
higher indicates that more people are optimistic about the economy, while that of
less than 100 means pessimists outnumber optimists.
The buoyed index is no doubt a direct reflection of an economic rebound. The
Korean economy grew 2.3 percent in the second quarter from the previous one when
it saw 0.1-percent growth, compared with a 5.1-percent contraction in the fourth
quarter of 2008. These figures show that the economy has bottomed out and that a
robust recovery may be achieved next year, although there still exist downside
risks. The government and major think tanks predict that the growth rate will
bounce back to 3-4 percent next year, compared with a projected contraction of
1.5 to 2 percent this year.
We hope that the prediction will be translated into reality so that the economy
can enjoy a solid recovery in 2010, successfully getting out of the worldwide
economic turbulence. But we have to take note of one important aspect of the
survey index: consumers predicted that property prices will go up while share
prices are to move in the opposite direction. The sub-index for homes, office
buildings and land increased to 106 in July from the previous month's 102.
It can be inferred that consumers think a property bubble might be formed in the
near future. In fact, there are growing signs of property speculation in southern
Seoul and some metropolitan areas. In other words, adverse effects of the
large-scale fiscal stimulus and monetary easing have begun to put air into the
bubble. Short-term excess liquidity has already surpassed 800 trillion won.
Against this backdrop, a debate has risen over the need for a reversal of the
expansionary policy.
However, President Lee Myung-bak and his economic policymakers have made it clear
that they will continue to stick to the current policy for the time being. Lee
said in his biweekly radio address that it is too early to discuss any exit plan
for the economy, although he believes that South Korea will be the first to
recover from the global economic crisis. Of course, a sudden policy change could
derail the nation's efforts for recovery and put the economy back into a slump.
But what's important is to take preemptive measures to tackle the side effects of
the expansionary policy. But it is not easy to find out when is the right time to
reverse the policy, raise interest rates, and tighten budget and liquidity. It
would be better to take timely and appropriate action on a step-by-step basis in
a bid to realize sustainable growth.
(END)