By Kang Seung-woo
Top officials are taking turns to warn of bleak prospects for next year as part of prevention tactics against any destabilizing factors from weighing on Korea’s economic growth. Global uncertainties are expected to hit the country’s real economy hard.
Against this backdrop, the government has prepared a contingency plan for additional fiscal expenditure to deal with emergency situations.
“Economic conditions at home and abroad are expected to be tough next year at a time when the eurozone fiscal debt crisis, major elections and North Korea variables remain in place as destabilizing factors,” Strategy and Finance Minister Bahk Jae-wan said during a crisis management meeting Wednesday.
“We should not let our guard down and must carefully respond to any developments by leaving all possibilities open.”
Financial Services Commission (FSC) Chairman Kim Seok-dong came up with a gloomier forecast.
“The local economy is likely to get far worse than expected next year and the most worrying part is the real economy,” Kim told reporters Tuesday.
He also said last week that the nation’s potential economic growth has fallen below 4 percent and this was really worrisome.
The remarks from the top economic policymakers come as uncertainties are expected to continue to weigh on the global economy.
According to the finance ministry and the Korea Center for International Finance, 207.5 billion euro ($271.20 billion) worth of government debt floated by Italy, Greece, Spain, Portugal and Ireland are scheduled to mature during the first quarter of next year.
If global funds suddenly exit Asia’s fourth-largest economy, the impact from the fallout on the financial markets and real economy could be as serious as that from the bankruptcy of Lehman Brothers in 2008 that remains the largest filing in U.S. history.
To make the situation worse, there are several signals that Korea’s economy has already fallen into stagnation, as its birthrate is sharply declining, while the inactive economic population has increased alongside a sluggish savings ratio and low investment sentiment.
Due to the current circumstances, the government’s economic policy has set its sights on stabilization and crisis management as it plans to depend on contingency guidelines if the economic downtrend continues.
“If the European sovereign debt crisis gets worse with no sign of resolution, an aggressive fiscal policy such as a revised supplementary budget is inevitable,” the finance minister said.
Bahk added that the death of North Korean dictator Kim Jong-il has had little impact on the local financial market thus far but the nation still needs to stay alert.
“Fortunately, financial markets are stabilizing and the impact of Kim’s death on the real economy has been subdued so far,” he said.
“But it is early to predict what will play out and the government should make efforts to minimize any ramifications by keeping its eye on major economic trends.”