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| Joe Biden is sworn in as the 46th U.S. president in Washington, D.C., Wednesday. / EPA-Yonhap |
Stable global leadership by U.S. to create favorable macro conditions for Korean economy
By Anna J. Park
With Joe Biden sworn in as president Wednesday, the U.S.'s economic policies seem poised to make an about-face from the Trump administration. Pledging to restore global cooperation, Biden re-signed the Paris Climate Accord as one of his actions on day one as president.
Given the new U.S. president's willingness to embrace the global leadership position that had been neglected during the previous administration, market watchers in Korea think Biden's presidency will create favorable conditions and new opportunities for Korean firms.
"All in all, political stances from the Trump administration stood aloof from those of European countries and China, creating a vacuum in global leadership in major institutions like the WTO and G20. This resulted in a lack of trust and confidence as well as a lack of stable predictability in international policy directions," Lim Dong-min, an economist at Kyobo Securities, said during a phone interview with The Korea Times.
The economist said that unlike the Donald Trump administration, the Biden government has so far been very clear about returning to the international cooperation system, while pursuing what is good for the U.S. economy. This clear stance allows the Korean economy a future direction in various areas whether it be international finance, digital, trade or on environmental issues.
"The Korean economy has achieved speedy growth so far by forming a significant value chain system for the global economy's development. Now that the global economic order and financial order are arrayed in a more predictable manner, it will generate bigger opportunities for the Korean economy, as it could be able to perform a bigger role," the economist explained.
It is expected that important global discussions, such as how to deal with digital taxes for transnational digital platform companies and e-commerce businesses, will see tangible progress under a closely knit cooperative global system. Governments and global enterprises' carbon-free direction will also be strengthened, accelerating the advent of environmentally sustainable businesses such as clean energy and electric vehicles.
Monetary and foreign exchange policies expected to remain on current course
Regarding monetary and foreign exchange policies, market experts say both President Biden and Treasury Secretary nominee Janet Yellen have been sending consistent and firm messages that recovering from the global pandemic is their top priority. As witnessed in Yellen's recent comment that tax hikes are not a current priority, the signal to the global economy that economic normalization could be accelerated is clear.
"Despite the market's concerns over the U.S. Fed's tapering, it is expected that this will be an issue for some time around next year. The Fed has already mentioned that it won't respond to the year-on-year increase in the inflation rate, and the current economic situation does not stand where unwinding from quantitative easing will be discussed soon," explained Stephen Lee, an economist at Meritz Securities.
The economist added that while the Fed's low interest rates should continue for the time being, it is expected that Bank of Korea won't take any rash actions such as raising its interest rate soon. Also, with expectations rising for global economic normalization, pressure will continue for the strengthening won and weakening dollar.
"In terms of foreign exchange, the government might need to take risk-avoiding measures to prevent any potential tail risks," the economist said.
Another market watcher also highlighted that the current inflation rate is not something to worry about ― rather it could be a sign of economic recovery.
"Some market watchers expressed concerns about deflation due to the possibility of a double-dip recession, as seen from the slowed vaccination progress and newly introduced lock-down measures in European countries," said Park Beom-ji, researcher at Meritz Securities. "Yet, economic indices show a clear tendency that the global economy is facing a normalization phase."
Based on this analysis, 2021 might be a honeymoon period for both the global economy and the Korean market, with its fiscal and monetary policies laser-focused on the goal of economic recovery from the pandemic, while closely watching the U.S. government and Fed's movement forward.
