U.S. meltdownThe worldwide financial crisis is no longer an ocean away. The financial rout stemming from the U.S. subprime mortgage mess is spreading all over the world.
The International Monetary Fund lowered its estimate on the global economic growth for this year to 4.1 percent from the previous 4.4 percent.
It also slashed its estimate for the U.S. economic growth rate to 1.5 percent from the previous 1.9 percent, highlighting that the increasingly visible economic downturn in the United States will hit the global economy harder than ever.
The worst-case scenario now sounds more real than ever as the fourth-quarter economic growth of the United States amounted to only 0.6 percent, less than half of the prior estimate. The U.S. Fed, in a hurried effort to boost the economy, slashed the benchmark interest rate by a whopping 0.75 percentage points on Jan. 22 before another rate cut of 0.5 percentage point eight days later.
But whether such dramatic actions will result in the intended result is not clear.
Generally speaking, exports have fueled Korean economic growth, which means that economic recession thousands of miles away may disrupt life here.
The recent plunges in the stock market may just be the beginning before domestic economic growth slows down.
The warning signs have been there for us to see for some time now. According to data from the National Statistical Office, local sales of consumer goods declined 1.7 percent in December from a month earlier, while industrial and mining production shrank 0.4 percent during the same period.
The economic expectation index, which shows consumers’ and companies’ expectations for the future, dropped by 0.1 percentage points, illustrating the economic downturn is becoming increasingly visible in Korea. It means the incoming administration of Lee Myung-bak that has repeatedly proclaimed it will boost the nation’s economic growth rate to 6 percent a year, faces challenges from the start.
What’s worse, no one seems to know any good short-term solutions that will ease the problems. At times like this, the governmentshould stick to fundamental principles rather than allow itself to be swayed by each twist and turn of the economic situation.
It has to make every effort to boost the nation’s growth potential by easing regulations and strengthening the economic fundamentals.