[Viewpoint] A double-dip recession is unlikely

Concerns have been mounting over the possibility of the global economy relapsing into a recession after a short-lived recovery from the severe slowdown in 2007-2009.

Warnings about a double-dip recession followed mixed signs in the U.S. economy and the sovereign credit risk in European countries during the summer. Although the economic momentum has been slower than expected, the world economy is unlikely to retreat back into a recession.

First of all, many governments and international organizations are better experienced in risk control after the Asian financial crisis in late 1990s and the recent global financial crisis.

The U.S. economic outlook remains dismal because of a slow pickup in domestic consumption and a real estate slump on top of a sky-high unemployment rate of 9.5 percent.

But the U.S. Federal Reserve and the Obama administration are expected to trot out necessary actions in necessary times to trigger a recovery and avoid another recession. The Obama government, which is heading toward midterm elections, may be working on another fiscal stimulus package equivalent to the two past emergency measures.

Even if the Republicans take seats away from the increasingly unpopular Democrats in the upcoming election, they will not be able to oppose the government’s new economic proposals out of fear of losing public support.

Even if the new fiscal stimulus legislation fails to gain congressional approval, the Fed would likely keep easing monetary policy to sustain the economy by purchasing mortgage securities and extending loans to households having difficulties in honoring mortgage debt.

Second, there is also the chance of further international coordination. The global economy avoided an even worse financial catastrophe resulting from the U.S.-based financial meltdown through coordinated efforts led by the G-20 and the International Monetary Fund.

Most of the major economies pumped in heavy fiscal spending to engineer a soft-landing and restore market confidence. They were in sync in using all possible monetary and fiscal remedies - record low interest rates, historically high fiscal spending and tax cuts. In the second half of last year, they were able to push the global economy back into positive growth territory.

Emergency funds have also been accumulated. Korea signed a $50 billion currency swap arrangement with the U.S., China and Japan.

The European Union, together with the IMF, created a 110 billion euro ($140.4 billion) fund to provide emergency relief to Greece and a separate 700 billion euro joint EU fund to quickly address future regional risks. The IMF board agreed to triple its emergency capital to $250 billion.

Thirdly, the international community has been continuing with structural reforms to prevent another financial crisis. Government, IMF and Basel banking committee supervisors have been keeping a close watch on global markets, advising prompt actions if ominous signs occur. The G-20 Summit slated for November in Seoul will likely approve a reform plan for the global financial structure to toughen regulations and supervision on high-risk financial instruments.

Lastly, solid growth in emerging markets like China, India and Brazil will likely make up for any economic slowdown in advanced markets, helping the global economy maintain stability. We thus appear to be safe from a double-dip recession that can seriously harm the global economy.

But it won’t be easy for the world economy to regain its past vigor after suffering a nearly unprecedented crisis during the last two years that has seriously damaged the growth structure and job prospects.

Governments will for sometime be preoccupied with improving social security nets because of the high jobless rate. Global companies and consumers have become more cautious in spending after the recent hard times. We know this from our own experience as our economy entered a slower pace of growth after the Asian financial crisis.

*Translation by the JoongAng Daily staff.
The writer is president of Choongmuro Forum.

By Moon Hiwhoa