Global Economy Fears Of Recession

The world economy is taking a serious turn. While the U.S. is not showing any sign of recovery, Asian countries, such as Singapore and Taiwan, which have depended on the exports to the U.S., are falling into the economic stagnation one after another. Both Argentina and Turkey, which are faced with the crisis of default, have risen as the exploder of the world economy, and Germany, the heart of the Europe economy, has also lowered the anticipated economic growth rate of this year.

- Stagnation of Asian Economy, Dominoes: Singapore announced on Tuesday that the GDP during the first quarter of the year (January-March) has decreased by 11.3 percent compared with the fourth quarter of the last year (October-December), followed by the decrease of the GDP by 10.3 percent during the second quarter of the year (April-June) compared with the same period of the last year. As the GDP has decreased consecutively for two quarters, the economy of Singapore is stagnated. The anticipated economic growth rate of this year has changed from 3.5-5.5 percent to 0.5-1.5 percent. Along with the weakened growth rate, the Singapore dollar recorded 1.84 against the U.S. dollar, the lowest in 11 years.

- Although Malaysia boasted more than 10 percent high growth rate last year, the growth rate dropped to 3.2 percent during the first quarter of the year. The growth rate of both Philippines and Thailand has remained 3 percent. The economic growth rate of Taiwan was only 1.1 percent during the second quarter of the year. The Financial Times reported that the fear of economic stagnation was spreading in East Asia saying, ``Thailand, Philippines, and Indonesia will soon show the minus economic growth.``

The reason for the all-round fall of the Asian economy is the decline of exports due to the slowdown of the U.S. economy. IT businesses take up the 20-40 percent of the total exports in Taiwan, Singapore, and Malaysia. However, the production of semiconductor decreased by 10 percent in Malaysia and by 12 percent in Taiwan compared with the same period of the last year.

- South America, the exploder of the world economic recession: Argentina, which was facing the default, issued on Tuesday the national bonds amounting to $ 880 million with the high interest rate of 14.1 percent to pay back the foreign debt with impending due date. The stock price dropped by 6.13 percent following 8 percent fall last week. IMF decided to aid $ 40 billion to Argentina, which has already $130 billion foreign debt, under the condition that Argentina should keep its fiscal deficit to $6.5 billion this year. However, Argentina is unlikely to satisfy this condition.

On Wednesday, the Brazilian real hit a record low of 2.57 against the U.S. dollar due to the energy crisis as well as the increase of the ordinary deficit. The Brazilian real dropped by 30 percent this year. Although the Brazilian government declared that it will inject $6 million by the end of the year to stabilize the currency market, foreign investors began to turn their backs, according to the AP.

Alex Garrad, a researcher of the London UBS, said that ``when Argentina and Turkey declare default, it will tremendously affect the global economy due to the outflow of the great amount of capital in the new market.``

- Discouraged `growth train`: Lawrence Lindsey U.S. White House Economic Assistant said on Wednesday, ``The U.S. economy is showing a sign of shrinking due to the weak business results as well as the lack of investment.`` The economic growth rate is anticipated to be zero during the second quarter of the year. Amid the firm dollar, the worsening of the companies’ profit, increase of unemployment, and the fall of stock continue. The anticipated economic growth rate of 1 percent during the third quarter of the year and 2 percent during the last quarter of the year, announced by Lindsey, did not reach the originally anticipated rate.

IMF lowered the anticipated growth rate of Germany, the heart of the Europe economy, from 1.9 percent to 1.25 percent this year. This is because the exports of Germany are influenced by the economic slowdown of the U.S. and Japan. The increase in the consumer prices due to the high oil prices as well as foot-and-mouth disease are also holding the economic growth. The stock markets in London and Paris fell 11 percent and 15 percent respectively.

Lee Jong-Hoon taylor55@donga.com