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By Kim Jae-kyoung
Staff Reporter
Countries across the globe, including the U.S., are struggling to cope with slowing economies. With every passing day bringing worse news, policymakers and investors are eager to know when the global economy will bottom out.
Some argue that it will follow in footsteps of Japan 15 years ago when Japan cut interest rates to zero to stabilize bankrupt financial institutions and expand fiscal stimulus. Many Japanese recall the period as a ``lost decade.''
However, most experts counter that argument, claiming that the global, as well as the U.S. economy, will not go down the same path as Japan did, due to coordinated global rescue efforts.
Mauro F. Guillen
director of the Lauder
Institute at the Wharton School |
``The Japan experience can be avoided. Countries are taking swift action this time,'' Mauro F. Guillen, director of the Lauder Institute at the Wharton School of Business, told The Korea Times.
``I think a one or two-year downturn in the U.S. is the most likely scenario. The situation is different from that in 1997-1998,'' he added. ``This time we are not seeing any major currency crises except for Iceland.''
He recommended that governments worldwide step up infrastructure investments to keep construction firms busy and pump money into the economy. But he cautioned that this needs to be done in such a way that inflation does not increase.
Guillen said that the global recession will send seismic shocks through East Asian economies, including Korea, as exports to the United States and Europe will suffer in the wake of the recession.
``Not only is there a credit crunch, but households are suffering from heavy debt. If the downturn is prolonged, consumers will pull back as jobs are lost and credit remains unavailable,'' he said.
``I think we need to wait and see to what extent gross domestic product (GDP) growth turns negative, and to observe if this is a shallow recession. If GDP drops by less than minus one percent, then this recession will be short-lived,'' he added.
As a way of preventing the Korean economy from slipping into recession, he proposed a three-pronged approach.
``First, keep inflation under control in the face of a depreciating won. This should be easier now with falling oil and commodity prices,'' he said.
``Second, make sure that people have enough money to spend by lowering some taxes and extending unemployment benefits so that domestic demand compensates for declines in exports,'' he added. ``Finally, for the longer term, continue improving productivity so that Korean competitiveness improves.''
kjk@koreatimes.co.kr
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