FOR three years the South Korean economy has been zipping along like a Ferrari in fifth gear. But this year it has hit a bump in the road. Korean economists are wringing their hands over an unexpectedly sharp slowdown in economic growth, a slump in the growth of exports, and a rising rate of inflation. A driving force behind this, the analysts contend, is the exploding wage demands of Korea's aggressive labor movement.
Some foreign and Korean observers caution, however, against an overly dismal view of Korea's economic condition. The slowdown, they say, is not that serious and is largely due to temporary factors. It also reflects a positive structural shift from emphasis on exports to greater dependence on domestic growth.
Moreover, there is suspicion that the government has overstated its case to justify a crackdown on labor unrest and to argue against further steps to balance its trade.
There is no dispute about the raw facts. Since 1986, the Korean economy has grown at a double-digit rate, including 12.2 percent in 1988. During the first quarter of this year (January to March), the economy slowed to a 5.5 percent growth. In February, industrial production actually declined, for the first time since 1980.
The trade results have been particularly disappointing for Seoul. Last year Korean exports grew 28.4 percent, yielding a $11.6 billion trade surplus. Although Korea continues to have a surplus, export growth fell off in the first quarter to 9.3 percent, and in April to about 3 percent. Measured in terms of quantity, exports actually declined.
The Korean government had projected a somewhat less drastic reduction in economic growth - down to 8 percent growth - on the basis of a projected drop in exports. But Chang Seung Woo, of the government's Economic Planning Board, contends the trade decline has been far steeper than predicted. He says that ``two factors coupled to slow down exports'' - rising wage levels and the rising value of the won, Korea's currency, against the dollar.
Government officials and businessmen have pointed with particular alarm to the impact of the tumultuous labor movement. Wage increases in the manufacturing sector rose about 20 percent last year and the annual spring settlement of contracts, according to government reports, is averaging 17.3 percent. The government is even understating that figure, charges a knowledgeable American banker based in Seoul. He places the percentage of wage increases closer to the mid-20s.
Previously ``the government put the highest priority on a growth-oriented strategy,'' acknowledges Mr. Chang, the planning board official. Keeping wage levels low has made Korean goods competitive in the world market. ``But Korea has already achieved the capability to realize a more balanced and equitable society,'' he says. However, ``people's expectations have exploded.''
The export slowdown earlier this year, the board and others contend, was due also to the impact of strikes and other work stoppages. During the first quarter, the board estimates a $642 million export loss due to labor disputes, most of that from the prolonged strike at the Hyundai Heavy Industries shipbuilding yards and from problems at auto parts suppliers.
Government economists also worry that the wage increases will fuel inflation. The target of 5 percent inflation, set by the government for this year, is now considered impossible to keep. There is also concern about rising unemployment, particularly in low-wage, labor-intensive, export-dependent industries such as textiles, shoes, and toy manufacturing.
Business circles have pressed the government to act forcefully to curb labor strife. The more interventionist approach has yielded greater calm in recent weeks.
Businessmen have accused the government of being too optimistic in its predictions that the economy will rebound later this year. They argue that the structural change triggered by higher wages and better distribution of wealth will endanger long-term growth. Business has also chafed at the appreciation of Korea's currency, pushed by the United States officials who have criticized Korean exchange controls for keeping the won artificially undervalued.
The Korean boom benefited greatly from the relatively slow rise of the won compared with the massive increase in the yen's value, giving Korean products a definite price advantage over their competitors.
Under US pressure, the won has risen more than 26 percent against the dollar since 1987, though this is still well below the rise of the yen or the Taiwan dollar. A key aim of government strategy now, says economist Park Won Am of the government-linked Korea Development Institute, is to ``stop appreciation of the won.''
``If the economy is so bad,'' he contends, ``there should be depreciation.'' The government approach, says Mr. Park, is to halt the ``deterioration of our exports.'' The government proposes to deal with trade pressures, particularly from the US, with which Korea continues to enjoy a substantial trade surplus, through a ``high expansion of imports,'' particularly from the US.
The Koreans have gained significant relief from trade pressure by the US decision this week not to name South Korea as a target for US trade retaliation under the so-called Super 301 clause of the Omnibus Trade Act.
A tough series of last-minute talks yielded significant Korean concessions on US demands to relax rules governing foreign investment, remove regulatory barriers, and liberalize barriers to imports. The two sides left the difficult area of liberalizing the market for agricultural products for later negotiation.
US officials in Seoul stress that they do not accept the Korean view that there is a serious deterioration of Korea's export strength. The slowdown in export growth, they say, is due in large part to seasonal factors. The last quarter of 1988 was the best in Korean history, because Korean exporters pumped out lots of goods in anticipation of further appreciation of the won (which would make their goods more expensive). Conversely importers, who benefit from the won's rise, delayed bringing in goods.
More important, the trade shifts also reflect a structural change toward domestic demand's becoming more important. As Koreans become more wealthy, they are consuming more. Wage increases also serve to encourage this trend.
``Part of the reason for the slip in exports is booming domestic demand,'' argues the American banker. A large component of the export downturn was cars, for example. But in this case there is now a several-month wait inside Korea for a car, partly the result of labor problems but due more to huge demand. Domestic sales, the businessman says, are also far more profitable.
There is also a strong growth of investment by Korean business in new plants and technology. The import of machinery is a major factor in the continuing growth of imports and the slowdown in the trade surplus.
Government policymakers acknowledge that they are going through, as the Development Institute's Park put it, ``an inevitable structural adjustment.'' But he, and others, warn against being pushed to make changes too fast.
``The transition is too big to tackle in a very short period of time,'' says Chang, the planning board official.