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Pre-emptive measures necessary to overcome signs of global economic crisis, N. Korea risks

Pre-emptive measures necessary to overcome signs of global economic crisis, N. Korea risks

Posted February. 12, 2016 07:27,   

Updated February. 12, 2016 07:33

한국어

South Korean stocks and currency plunged on Thursday, the first trading day after the Lunar New Year's holidays. The main Korea Composite Stock Price Index (KOSPI) dropped 56.25 points, or 2.93 percent, to end at 1,861.54, suffering the biggest decline in three years and eight months. The Korean won closed at 1,202.5 won against the U.S. dollar, down 5.1 won from the previous trading day.

Lately, the global economy has been rattled by ominous signs simultaneously seen in advanced economies such as Japan, Europe and the United States, in addition to the existing destabilizing factors including concerns over the Chinese economy's possible hard landing and plunging international oil prices. Although Japan took a radical measure of introducing negative interest rates in order to boost its economy, the value of the Japanese yen has surged, with the Nikkei stock price index plummeting by 7.6 percent in just two days from Tuesday. Hong Kong's Hang Seng China Enterprises Index plunged by nearly 5 percent at one point on Thursday. The Financial Times, a British daily, reported that the world is facing worse business conditions than during the 2008 financial crisis, while the U.S. Bloomberg News warned a global financial crisis stemming from China. U.S. Federal Reserve Chair Janet Yellen's remark on Wednesday that the Fed could slow the pace of future interest rate hikes is interpreted as a message that the U.S. economy economic recovery will slow down.

Adding burdens to the South Korean economy are the heightened geopolitical risks on the Korean Peninsula following a series of strong sanctions against North Korea for Pyongyang's nuclear and long-range missile provocations. If the risks caused by North Korean leader Kim Jong Un grow, they will have ill effects on the South's financial markets and real-sector economy, which could become a negative factor for Seoul's sovereign ratings and make it difficult for the South Korean government to achieve its economic growth target of 3.1 percent.

The government's economic team, led by Finance Minister Yoo Il-ho who took office a month ago, should have an accurate and quick grasp of the situations at home and abroad to pre-emptively take measures to stabilize the financial markets and boost domestic consumption. Even at difficult times, businesses and consumers should maintain normal investment and consumption as much as they can afford to help prevent the vicious economic circle of an economic downturn and financial instability.



권순활논설위원 shkwon@donga.com