Is Global Financial Crisis Over?

By Kim Tae-gyu
Staff Reporter

The global financial crisis seems to be over ― or at least it is nearing the end ― just as a flurry of positive figures both at home and abroad appear to be indicating.

The jobless rate in the United States went down by 0.1 of a percentage point in July for the first time in 15 months. Employers also started to be prudent in slashing jobs.

Sales of cars and houses are also showing signs of recovery in the world's largest economy, and industrial output is expected to grow there in the third quarter.

Things are also looking much better in Korea.

Consumption is rebounding faster than expected as retail sales reached a record high 62.86 trillion won in the second quarter, up by 4.6 trillion won from the previous quarter.

Asia's No. 4 economy chalked up an all-time high half-year surplus of $21.75 billion over the January-June period and asset prices are rising, as firms come up with earnings surprises.

The Organization for Economic Cooperation and Development (OECD) expected that the domestic economy will recover later this year, citing the high composite leading indicator (CLI).

The country's CLI, which measures how the economy will evolve in six months, rose to 100.7 in July, up from 98.9 last month ― a CPI reading above 100 indicates that the economy will expand.

This is prompting optimists to declare the end of the financial crisis.

Barclays Capital said late last week that the economic downturn was already over, headed by such global powerhouses as the United States and Germany.

``We expect June to have been the last month of the U.S. recession and April to have been the last month in the German recession, making it the deepest and longest in the post-war era for both countries,'' Barclays' top researcher Christian Broda said.

``In short, we have grown in confidence that the rebound that started in Asia early in the year has now become a truly global rebound.''

Even U.S. President Barrack Obama, who has been reluctant to admit to a budding economic recovery, said that the economy is heading in the right direction.

Despite all the good news and optimistic atmosphere, worries still linger on outlooks. In particular, some experts warn against the possible optical illusion of a recovery.

They think that the lowered unemployment in the United States was caused by about half a million citizens who gave up their search for work, and the jobless rate is expected to eventually go through the 10-percent plateau.

The healthy sales of automobiles were boosted by state subsidies and expanded industrial output is by and large underpinned by the huge government expenditure.

For Korea, the record trade surplus was propped up by decreased imports rather than increased exports, while respectable corporate performances were generated by cutting costs rather than jacking up revenue.

``We have three paths lying ahead. The first one is a fast recovery and the second is a protracted slump. The last one is another dip in the aftermath of a short recovery,'' a Seoul analyst said.

``The problem is that we cannot say what is in store. We should be cautious in predicting the future. Nobody knows where we will be in a year's time.''

voc200@koreatimes.co.kr



IMF Expects Local Economy to Contract 1.8 % in 2009

By Yoon Ja-young
Staff Reporter

The International Monetary Fund (IMF) Sunday predicted that the Korean economy will contract by 1.8 percent this year. The latest IMF projection was a major revision from a 3 percent decline made last month.

The improved outlook comes against the background of the global economy finding itself on a recovery path.

In line with the IMF's upward revision, the Korean government is also moving to raise its growth outlook, saying the worst is over.

The fund maintained its outlook of 2.5 percent growth for 2010, noting that expansionary fiscal policies might be less effective next year.

It said uncertainties are lingering, pointing to the rising savings rate in developed countries that could lead to sluggish export markets, a recurrence of the global financial crisis and oil price hikes as downward risk factors next year.

The IMF said Korea is on a fast recovery track thanks to timely and comprehensive policy measures following the crisis in the fourth quarter of last year.

The Washington-based organization first estimated the economy to shrink by 4 percent in February, but raised this by 1 percentage point to 3 percent on July 7.

It added that Korea saw the most drastic economic fall of 5.1 percent in the fourth quarter of 2008, on massive capital outflow, falling asset prices and export declines.

The credit crunch, however, has eased upon successful policies and the current account surplus achieved through the weaker Korean currency and falling oil prices.

The IMF said the weak won eased deflationary pressure and helped the country record a surplus in the current account as imports fell.

The country's foreign exchange reserves, which dwindled by $38 billion in the fourth quarter last year, are also recovering.

The fund pointed out that economic indices, including exports, industrial output and services, have improved greatly compared from the end of the last year. It evaluated that the economy in the first quarter was stable.

The IMF made the announcement following a two-week consultation with the Korean government.

chizpizza@koreatimes.co.kr