By Kim Jae-won
The Korean economy is expected to stay in a trough for a considerable period of time due to weakening resilience, according to a renowned global economist, Thursday.
Stephen Roach, a senior fellow at Yale University, said Thursday that it will take some time for the Korean economy to recover fully from the subdued growth because the lingering sluggish global economy still remains an obstacle for the export-driven country.
The former chairman of Morgan Stanley Asia said that Korea quickly weathered the Asian financial crisis in the late 1990s, but this global crisis will impact more strongly on the nation, whose trade volume accounts for more than 80 percent of its gross domestic product.
“The Global output problem has more impact on Korea than was the case in the late 1990s. The protracted sluggish global economy is actually more challenging for export-driven economies like Korea than the developed countries,” said Roach at a conference in Seoul hosted by the Korea Institute of Finance.
He said Korea will suffer from low demand from the West, hit by the eurozone debt crisis and a weak U.S. economy, quoting a recent report released by the International Monetary Fund.
Roach suggested that Asia’s fourth-largest economy should keep diversifying exports and moving its dependency from the West to Asian countries to brace against the economic problems in Europe and the U.S.
He praised the fact that Korea successfully overcame the Asian crisis in the 1990s within two years by regaining its pre-crisis peak and eliminating the gap between potential and actual growth.
Regarding the Chinese economy, he said data shows that the world’s second-largest economy is landing softly in the last few quarters, unlike right after the 2008 global financial crisis, when the country had a hard landing.
The Yale professor, meanwhile, criticized both U.S. President Barack Obama and his Republican challenger Mitt Romney, for making China a scapegoat for their country’s economic woes. He said the problem of the world’s biggest economy is that Americans do not save enough, and not that China manipulates its currency rate.
He argued that the Chinese yuan, in fact, has appreciated by more than 30 percent to the dollar since July 2005, a big change in the short term. The U.S. economist said that China is going in the right direction in terms of currency policy, citing the example of Japan, which made a huge mistake by listening to the West in the Plaza Accord in 1985, which appreciated the yen drastically in a short time. The consequence was a longstanding economic downturn for the world’s third-largest economy, he said.