Construction Industry Falters While Government Wanted Soft Landing

It turns out that the government’s four initiatives to revive the economy were not as successful as expected. The initiatives aimed at creating jobs, fostering small- and medium-sized enterprises (SMEs), achieving a soft landing of the construction industry, and supporting credit delinquents.

As domestic spending remains sluggish, it is expected that the initiatives will not achieve better results in the remaining period.

The government announced a comprehensive plan for job creation early this year in which the government planned to create 400,000 jobs every year until 2008, a total of two million new jobs.

It started well enough in the first four months on its way to achieving the goal of 400,000 new jobs by the end of this year.

However, as the economic recession continued and the construction industry contracted sharply, employment increased year-on-year by only 368,000 in May and by 256,000 in August. As a result, it became more convincing that creating 400,000 jobs was elusive from the beginning.

The government also came up with comprehensive measures to foster SMEs. As part of the effort, the Credit Guarantee Fund strengthened its credit guarantee service for SMEs in July, but SMEs complained that they did not feel substantial improvement at all.

According to the industrial activities in August recently released by the National Statistical Office, SMEs’ monthly industrial production index decreased 4.2 points to 110.4 from 106.2 last month.

In a poll conducted by the Industrial Bank of Korea on 2,064 SMEs, 37.2 percent said they are having difficulties with funding, a 2.3 percentage point increase from 34.9 percent of last month.

At the same time, the government pursued a soft landing of the construction industry in July by strengthening support for housing construction and increasing investment in Social Overhead Capital. Despite such effort, however, the construction industry contracted sharply as shown in the plunging number of construction contracts and housing construction compared to last year.

Although credit delinquency did not worsen, the number of credit delinquents has not decreased substantially from the 3.7 million figure.

Professor Hong Gi-taek at Chung Ang University said, “Job creation, SMEs, and credit delinquency issues can be resolved when the economic conditions such as domestic spending improve and when companies invest actively in general. The government’s measures were not very effective, for the government has focused on individual problems.”

The opinion from the business sector that the government should come up with fundamental measures to recover investment sentiment and consumer sentiment is gaining support.