Meanwhile, Korea’s annual trade deficit surpassed $30 billion for the first time. The benchmark Korea Composite Stock Price Index (KOSPI) plunged below the 2,200-point level on Tuesday as global semiconductor company stock prices plummeted amid US restrictions on China’s semiconductor-related businesses. The Korean won slipped as low as 1,430 per dollar against the US dollar.
The institution pointed to high inflation, the bursting of the real estate bubble in China and the ongoing war in Ukraine to lower its projected global economic growth rate for 2023 by 0.2 percentage points to 2.7 percent. The outlook suggests that China’s real estate market will continue to weaken amid ongoing inflationary pressures and accounts for 30 percent of the country’s economy. Europe could experience a prolonged economic downturn due to Russia’s tight gas supplies. It also implies that Korea’s major trading partners will suffer from a severe economic slowdown. At the same time, the weakness of the Korean won should continue to weigh on the strength of the ‘king dollar’ and expensive commodity imports.
Signs of an economic recession in Korea are also becoming clearer. The country’s trade balance, which was consistently negative for the six months to September, ran a $3.8 billion deficit in the first few days of the month. With the trade deficit piling up to $32.7 billion for 2022, Korea’s annual trade balance could likely turn negative this year in 14 years since the global financial crisis.
The crisis must not remain in the real economy. Many note that the economic crisis is a complex combination of stagflation in the 1970s, the Asian financial crisis of the late 1990s, and the global financial crisis of 2008. Emerging markets running out of US dollars are turning to the IMF for bailouts. At the same time, a financial crisis appears to be imminent in the UK, which has recently led to a collapse in the sterling currency and a collapse in government bonds.
The global economy is entering an era of “new normal” characterized by high interest rates, high inflation and high exchange rates. A rate hike seems inevitable, even at the expense of a slowing economy and rising unemployment. Otherwise, the economy may decline due to high prices and currency crises. Additionally, Korea’s export-oriented economy is pinched in terms of technological competition between the US and China while struggling with expensive commodity imports. Many are warning signs that our economy could sink into low structural growth if we don’t manage the crisis wisely this time. All national economic actors should be fully prepared for the impact and share the burden of weathering the crisis.