SEOUL (THE KOREA HERALD/ASIA NEWS NETWORK) -Presiding over a weekly Cabinet meeting on Tuesday (Feb 18), President Moon Jae-in called for all extraordinary measures to be taken to cope with what he described as an emergency economic situation.

He said the situation required an emergency prescription, stressing the need to exert imaginative powers beyond expectations in making such efforts.

His remarks came a day after he instructed his economic team to take strong measures to minimise the impact of the spread of a new coronavirus on the economy.

His sense of urgency marks a departure from his earlier optimistic view of the economy. Until recently, he had repeatedly said the country's economy was showing signs of recovery.

Although it may be belated, Mr Moon's latest diagnosis of the difficult economic situation is correct.

Partly affected by the coronavirus outbreak, South Korea's annual economic growth rate is expected to tumble below 2 per cent this year, reaching the lowest level in more than a decade.

The spread of the epidemic, which originated from the central Chinese city of Wuhan in December, is beginning to hurt local consumption and production in addition to reducing exports to China and disrupting Korean manufacturers' supply chains there.

But it is a misperception that South Korea's economy was showing signs of rebounding before being shocked by the coronavirus crisis.

Actually, the economy was already going into a slump with the private sector losing its vitality.

The economy managed to grow 2 percent last year, mainly on the back of fiscal expansion amid a simultaneous downturn in corporate investment, private consumption and outbound shipments.

Fiscal spending contributed 1.5 percentage point to the 2019 growth rate, the lowest since 2009, while the private sector's contribution remained at 0.5 percentage point.

Critics say Mr Moon appears to be using the fallout from the coronavirus outbreak to cover the negative effects of his misguided policies and make the case for further expanding fiscal spending.

He may feel all the more need to shore up the faltering economy through increased fiscal expenditure to avoid aggravating voter sentiment against the ruling party ahead of the general election on April 15.

During the Cabinet meeting, Mr Moon said the early spending of the state budget for this year would be just a basic step the government should take.

His emphasis on the need to mobilise all possible means to bolster the economy has raised the possibility that the government will consider drawing up an extra budget.

It is necessary to increase tax incentives and other financial support for companies and small business owners struggling to keep afloat. But such stopgap measures are far from enough to overcome what Mr Moon describes as an emergency economic situation.

More broadly, fiscal expansion pursued by the Moon administration since it took office in 2017 has done little to strengthen the fundamentals of the economy.

Increased government spending has been largely funnelled into increasing cash transfers and offsetting the negative effects of its income-led growth policy backed by a string of pro-labour measures, including steep minimum wage hikes and a shortened workweek.

The government has also imposed more regulatory restrictions on private firms, contradicting its pledge to promote innovative growth through sweeping deregulation.

In the face of toughening business conditions at home, South Korean companies have reduced domestic facility investment, while moving their factories abroad.

Attention is now being drawn to a package of measures Mr Moon's economic team plans to come up with by the end of this month.

Finance Minister Hong Nam-ki, who doubles as deputy prime minister for economic affairs, said this week the package would include policy tools to support exports, consumption and investment.

The government should go beyond resorting to more fiscal spending just to cope with the fallout from the coronavirus epidemic.

All measures need to be taken to help revitalise corporate activity.

Regulatory barriers for corporate investment in new businesses should be lifted. Bolder tax cuts and measures to make the labour market more flexible should be included in the package.

It would not require much imagination to work out such corporate-friendly steps.

Mr Moon was right to stress the importance of the timing of policy during the Cabinet meeting.

In the fourth quarter of last year, more than half of South Korea's listed firms saw their earnings plummet amid deteriorating business conditions at home and abroad. The fallout from the coronavirus crisis may push many of them over the cliff.

The Moon government should recognise it now has just one last chance to pull the economy out of the deepening slump by making a fundamental shift in its economic approach that has proved wrong.

The Korea Herald is a member of The Straits Times media partner Asia News Network, an alliance of 24 news media organisations.