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The financial crisis in the United States, exacerbated by the bankruptcy of Lehman Brothers, is pushing not only the financial markets of major countries but business operations and the real economies of those nations into the swamp. Faced with the prospect of drastic slowdowns in growth during the second half of this year, the world¡¯s economic powerhouses have started various pump-priming measures including tax rebates to counter economic stagnation.
In Korea, the economy is rapidly cooling off with small and mid-sized businesses facing a liquidity crunch, while household debts are snowballing, the real estate market is stagnant and unemployment remains high. Bank of Korea Governor Lee Seong-tae told the National Assembly¡¯s Planning and Finance Committee on Wednesday that the global economic crisis has only now begun to unfold in the real economies of different countries, warning of drawn-out stagnation around the world. Private economic research institutes in Korea have begun downgrading their growth forecasts for the Korean economy for 2008 and 2009.
¡ß Global economic crisis worsens
The U.S. economy, the rudder for the direction of the global economy, appeared to be recovering as it was supported by pump-priming measures such as tax rebates. GDP growth, which shrank 0.2 percent during the fourth quarter of last year, rebounded into positive territory this year to rise 0.9 percent in the first quarter and 3.3 percent in the second. But the world¡¯s largest economy is expected to decline again during the second half. The U.S. Congressional Budget Office projects the U.S. economy to grow 1.5 percent this year, far slower than the 2.2 percent increase last year. The CBO projects U.S. economic growth to slow even further to 1.1 percent next year.
Because of the housing market slump and credit crunch in the U.S., the economies of Europe and Japan shrank during the second quarter, and China¡¯s GDP growth is slowing. These countries are injecting liquidity into their markets so that the U.S. financial crisis does not spill over into their real economies.
Kim Deuk-kab, a senior researcher at Samsung Economic Research Institute, said if prolonged jitters in global financial markets increase the cost of raising capital, this could lead to a worldwide deflation -- decline in the value of assets such as real estate -- as the economies of advanced countries stagnate and the pace of growth among developing nations slows down.
¡ß Exports and domestic consumption slowing
Experts say the U.S. financial crisis will impact Korean exports. They project it will adversely affect the real economies of Korea¡¯s main export markets of Europe and Japan, as well as China, worsening conditions for Korean shipments abroad.
Huh Chan-guk, director of economic research at the Korea Economic Research Institute, said the Korean economy, which was plagued by slow private consumption over the last six years, is fueled solely by exports. And export growth could slow to the 10 percent range during the second half of this year, from 20 percent during the first half, as a slowdown in global economies is compounded by the financial crisis.
If the U.S.-triggered financial instability continues, stock prices will drop, and businesses and households will have problems obtaining loans, causing business activity, private consumption and other aspects of the real economy to shrink more than originally anticipated.
Kim Hyeon-wook, a research fellow at the Korea Development Institute, said the reason why global oil prices are dropping in the financial crisis is because there is a lot of concern about economic stagnation in the U.S. and other countries. That means falling oil prices are not completely good news for our export-dependent economy. Kim said the KDI was considering downgrading its GDP growth forecast for Korea from 4 percent to even lower. A staffer at the Samsung Economic Research Institute said it intends to consider the present financial crisis in its 2009 GDP growth forecast to be announced soon.
¡ß Government and businesses struggling
The government and businesses are moving swiftly to minimize the impact of the financial crisis on the real economy. Financial Services Commission Chairman Jun Kwang-woo told a National Assembly committee his agency was coming up with measures to resolve jitters and weaknesses in the Korean financial markets by dealing with defaults on loans owed by small and mid-sized companies, as well as so-called project financing loans extended by savings banks. Vice Strategy and Finance Minister Kim Dong-soo on a radio program said the government was looking into dealing with high real estate prices.
Samsung Electronics, LG Electronics and other electronics companies are preparing measures to deal with the drawn-out recession in the U.S., which is a key export market for high-tech products.
(englishnews@chosun.com )
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