The IMF and the long haulThe global economy and the Korean domestic economy are showing signs of recovery, but that hasn’t stopped the International Monetary Fund from predicting that the worldwide economic slowdown will last beyond this year.
In a forecast released on Thursday, the IMF said the current slowdown was the result of the U.S.-sparked financial crisis combined with the global economic downturn, so the impact would be serious and long-term, and that we should be prepared.
IMF Managing Director Dominique Strauss-Kahn said the world economy’s free fall would perhaps end soon and predicted that if the right stimulus measures were implemented, the Korean economy could be revived next year, but it would unavoidably worsen this year.
The IMF forecast world economic growth this year to be minus 0.5 to minus 1 percent, meaning it will be difficult to end the economic slowdown this year, even though administrations in many countries have implemented stimulus measures including increases in public spending.
The IMF’s pessimistic outlook shows clearly that recent improvement in some indicators such as stock markets and the real estate market do not mean economic recovery is at hand.
In a meeting to encourage trade and investment on Thursday, President Lee Myung-bak said there were positive sides to Korea’s economy, but it felt like the country was standing in the middle of a long tunnel and it would take time to reach the end.
His remarks call on us to tighten our belts and prepare for a long-term slowdown rather than read too much into improvements in some economic indicators. We believe the president’s rational understanding is vital to overcome the current economic crisis.
If we let down our guard as if the crisis will soon be over just because some economic indicators have improved, the slowdown might worsen and could take longer to reverse. We should expect the agony to continue, such as more job losses and bankruptcies.
Our economy is heavily dependent on trade and it is very sensitive to changes in the global economy. But we can’t change the structure of our economy overnight.
Therefore, if the global economic slowdown is prolonged just as the IMF predicts, we can’t restore our economy alone. It is an illusion to believe that increases in stock prices and positive moves in the real estate market are signs of economic recovery.
Each economic participant must be prepared for a worst-case scenario and assume that the economic slowdown will take some time to sort itself out. All economic players must do their best to prepare themselves.