By Sah Dong-seok
Deputy Managing Editor
Nearly six months have passed since Lehman Brothers went bust. Its impact has been deeper and broader than thought earlier. The United States, the epicenter of the latest global economic crisis, is groaning under the stress of bad legacies: soaring job losses, plunging home prices and tumbling stock prices. Almost all countries around the world are reeling from the aftershock.
A glimpse of recent U.S. economic figures shows how serious the once-in-a-lifetime crisis is. To be sure, things seem to be getting worse. The U.S. unemployment rate hit a 25-year high of 8.1 percent last month with job losses reaching more than 4.4 million since the recession began in the U.S. in late 2007. One in eight American homeowners is in foreclosure or behind payments. The median price of a home sold in the U.S. fell to $170,300 in January, down 26 percent from a year and a half earlier, and the Federal Reserve predicts home prices could fall 18 to 29 percent more by the end of 2010, according to The Associated Press.
American stocks have lost more than half of their value since the stock market reached a peak in October 2007. Analysts say it's the worst bear market since the aftermath of the crash of 1929, when the Dow Jones industrial average plunged 89 percent.
Looking inward, the situation is just as serious. As expected, the turmoil in the financial sector spilled over into the real economy. The South Korean economy contracted 3.4 percent year-on-year in the last quarter of 2008, the worst performance in more than a decade, due to tumbling exports and weak domestic demand and think tanks forecast that the fourth-largest Asian economy could shrink 5 to 8 percent in the first quarter of this year. It's almost certain that the local economy will suffer negative growth this year.
The protracted economic downturn is feared to prompt more companies to cut back on investments and their workforce, forcing households to tighten their purse strings and dealing a blow to already-weak domestic demand. Amid the bleak outlook, economists even with a positive attitude say a recovery can be expected only after next year, not in the second half of this year.
Local financial markets have been in renewed jitters since the turn of this year as Citicorp and American International Group have been virtually nationalized and default risks in Eastern Europe have mounted. Fears loom large that the benchmark Korea Composite Stock Price Index (KOSPI) could fall below 1,000 points and the Korean currency, the won, could fall to 1,600 won against the dollar. What is more ominous is that the latest crisis is gradually gnawing at the economy, unlike in the late 1990s when the crisis came all of a sudden. As things stand now, it seems very difficult to see light at the end of the current dark tunnel. However, every cloud has a silver lining.
The ray of hope is still slight but there is much room for us to look at the future brightly. First of all, the country's exports showed a relatively smaller drop, compared with those of rivals such as Japan and Taiwan. In January, their exports tumbled by 46 and 44 percent, respectively, while South Korea's shipments fell by a narrower 34 percent thanks to its more diversified export destinations and items. In particular, Hyundai-Kia Automotive Group has hit upon a unique marketing method to make a strong showing in the U.S. at a time when most other big automakers suffer from plunging sales. The country's largest automotive group sold 30,621 cars in the world's largest car market in February, down 1.5 percent from a year ago but up a whopping 25 percent from January. In contrast, General Motors and Ford saw their sales nearly halved.
Some watchers raise hopes for the opening of new markets around the world amid the flurry of stimulus packages by the U.S. and other big economies. The Korea Trade-Investment Promotion Agency estimated the size of the newly created market at nearly $2.5 trillion, about 3.8 percent of the global gross domestic product, and urged companies and government to be more proactive in pooling information and exploring new opportunities. Of those countries, China is drawing special attention because of its huge potential as a possible locomotive for the global economy. In fact, stock quotation boards at the world's major stock markets turned red once last week as word spread that the world's most populous country would unveil a fresh stimulus package. The news proved false later but it showed how anxiously the world was looking at China as the ``savior of last resort.''
It was also fortunate that the fall in real estate prices has not reached an awful 50 percent and there was no massive redemption of funds.
To be sure, this turmoil is cruel but we don't have to be overly pessimistic because the economy has cycles and always recovers. It might be consoling if we recount a line from Shelley's poem ``If winter comes, can spring be far behind,'' as Strategy and Finance Minister Yoon Jeung-hyun did last week.