Global Recession Once More?
A significant impact is about to fall on the South Korean economy. The continuing debt crisis in the U.S. is intensifying the uncertainty in the global financial and business market conditions. According to market analysts, fears are building due to the possibility of the world’s largest economy defaulting from its global debts. The U.S. politicians remain unsure on how to raise the borrowing limit, the world is paying close attention to whether the U.S. can arrive at a deal before the deadline.
Failure will automatically send out a shockwave in the global economy, resulting in the plunging dollar and freezing investor sentiments. It is highly likely that the world will experience another economic recession. A plunge in the U.S. dollar would undercut the nation’s overall export price competitiveness since there will be a very quick spike in the nation’s local currency value. South Korea, which depends heavily on exports, could possibly become the hardest hit nation.
In the short term, the government’s ongoing efforts could bring the current inflation under control by lowering import prices. A projection released by the Bank of Korea stated that a 10 percent appreciation of the nation’s currency could translate into a $70 billion reduction in its current account balance and a 0.8 percent point decline in the gross domestic product.
Furthermore since South Korea’s financial system heavily relies on foreign investments in various markets, a U.S. default could lead to a freeze in the capital flows. To make matters worse, lingering worries surrounding the debt issue will cause a rise in interest rates and intensify the financial market instability in the nation.
Washington announced it will successfully find a compromise to avert the feared default and avoid an immediate credit downgrade. Although only a few expect the U.S. will fail to meet the deadline, South Korean analysts and economist predict the U.S. will be unable to avoid an increase in premiums and borrowing costs. They also believe the uncertainty will creatе a hangover and it will be extremely difficult to reach a long-term fiscal soundness.
Capital held in South Korea by foreign investors are already leaving the local markets and the market anxiety in the U.S. will play an unfavorable factor. It remains to be seen whether the U.S. will reach its debt ceiling. The possible volatility in the foreign currency markets is exacerbating major economic indicators.
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