Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
COVID-19 may trigger global economic crisis
By Lee Min-hyung
By Lee Min-hyung
Former Financial Services Commission Chairman Jun Kwang-woo
The coronavirus outbreak will likely trigger far worse economic damage than the 2008 global financial crisis, as the spread of COVID-19 is posing “broader and far-reaching” threats to the world economy by stifling both supply and demand in all industrial sectors, finance experts said Wednesday.
The looming crisis is fundamentally different and more threatening than the international banking collapse brought about by the U.S. subprime mortgage meltdown in that the virus is rapidly disrupting global supply chains and deactivating nearly all economic activity here and abroad, they noted.
“Chances are the virus-induced economic malaise will escalate into a bigger financial crisis than the one in 2008, as the epidemic appears to rapidly paralyze economic activity at home and abroad in an uncontrollable manner,” former Financial Services Commission (FSC) Chairman Jun Kwang-woo told The Korea Times.
Shin Je-yoon, an ex-chairman of the Financial Services Commission
Jun is a renowned financial expert, having worked at the World Bank for 12 years before becoming chief of the top regulator in 2007. Currently he leads the Institute for Global Economics.
The prediction comes amid growing worries over a global economic collapse after the U.S. stock market suffered its biggest drop Thursday (local time) since the “Black Monday” crash of 1987 as a reaction to escalating concerns over the economic fallout from the COVID-19 outbreak.
The local financial markets have also undergone turbulent ups and downs in recent weeks after the country started making global headlines as one of the worst virus-affected countries.
On Friday, the stock market suffered a sharp decline on the growing fears about the pandemic here and aboard. The Korea Exchange even activated a series of trading-halt measures to minimize volatility.
United Future Party lawmaker Choo Kyung-ho
“The ongoing virus-induced economic uncertainty may deepen and turn into a far more alarming crisis in that the virus is damaging not just the financial markets, but the real economy,” Jun said.
The global economy is standing at a “very critical juncture” over the looming crisis, as the scale of its potential damage will be determined by how serious the virus hits the West in the next few weeks, according to the former top finance bureaucrat.
“The virus may cause a general paralysis of the global economy in the worst-case scenario,” he said. Jun also underlined the need for Western countries to go all-out to slow down the spread of the virus.
Shin Je-yoon, another former chief at the FSC, also raised the likelihood that the current situation might escalate into a financial crisis even worse than that of 2008. Shin served as first vice minister of the then-Ministry of Strategy and Finance before being appointed FSC chairman in March, 2013.
“Simply speaking, economic activity is rapidly shrinking,” he said. “For now, the most important thing to tackle the ongoing crisis is to calm down the sense of virus-related anxiety among the public, but for now, things do not appear optimistic enough about doing this.”
'Comprehensive contingency plan'
Amid the mounting fear, the authorities in the U.S. and South Korea are coming up with strong pump-priming measures through fiscal and monetary policies.
Despite such moves, the Korean economy has been hit hardest by the virus fallout among major global economies, as the surging number of confirmed cases has frozen outdoor activities by the public. To prevent the virus from spreading further, a growing number of companies here are adopting a telecommuting system.
Jun advised the government to focus on deregulating anti-market policies to reinvigorate the sagging economy.
“It is inevitable for the government to expand its fiscal budget to help the virus-hit economy.”
But much more important is a shift in policy drive to revitalize the economy, and the key lies in easing regulations for companies to increase investment and consumption, according to Jun.
To do so, politicians should join forces together to promote this virtuous circle, which will also be good for the economy's longer-term growth.
“By making drastic changes in anti-market policies, the government can help companies rev up the economy, and this will boost consumption in the private sector,” he said.
Choo Kyung-ho of the main opposition United Future Party, urged the government to come up with a “comprehensive contingency plan” to fight the pandemic-driven economic crisis.
“The government should focus on mapping out a broader and more specific contingency plan to deal with the ongoing crisis,” he said. Choo previously served as a vice finance minister and minister of the Office for Government Policy Coordination.
For now, the government appears to be focusing on microeconomic measures against the further spread of the virus, but it is much more important to look at the big picture in drawing up responses for potential economic damage down the road, he said.