Concerns Over Global Economic Stagnation

With the economic indicators of developed countries, such as the U.S., Europe, and Japan, aggravated, some analyze that the rate of global economic growth has started to slow earlier than expected.

In addition, with the international oil price surpassing $46 a barrel (based on US West Texas Intermediate-WTI- crude oil), the highest ever, it became highly possible that production and consumption in each country will decrease.

Many people voice concerns that the Korean economy, which is dependent on exports in times of depression, will become more difficult in the second half of this year due to such unfavorable overseas conditions.

The Financial Times of August 14 analyzed that the global economy has entered a new phase that is different from the booming stage prevalent up to now, based on the scale of the U.S.’s trade deficit in June and the slowing down of economic growth rates in Japan and Europe.

The U.S. trade deficit in June, which was announced on August 13, reached $55.8 billion, the biggest ever. It was $88 billion higher than $47.0 billion, which Wall Street economists expected.

The Financial Times anticipated that the provisional rate of U.S. economic growth in the second quarter can be adjusted to 2.5 percent from 3 percent, which was announced before.

According to a survey by the University of Michigan, the U.S. consumer confidence index for August dropped from 96.7 in July to 94.0, and the consumer expectation index for August also dropped 6.5 points to 84.7.

The economic growth of Japan, the second-largest economic power, likely has slowed down too. Its economic growth rate for the second quarter dropped to 1.7 percent, even though it reached 6.1 percent in the first quarter.

In particular, its nominal GDP, which takes no price fluctuations into account, turned negative, reaching -0.3 percent after it stayed positive during the last five quarters.

The growth rate in the second quarter of the 12 countries in the European bloc also reached only 2.0 percent, contrary to experts’ expectations that it would be higher than the first quarter.

Such poor marks in each country’s economic indicators were brought by decreases in consumption and production in the wake of the slump in IT business and the increase in oil prices.

On August 13, West Texas Intermediate (WTI) and Dubai Crude ended at $46.59 and $39.81 a barrel, increases of $1.16 and $0.36, respectively. Compared to July 1, Dubai Crude increased by 20.4 percent.

“The ascending stage of the economic cycle is coming to its end,” said Mark Cliffe, chief economist at ING financial markets, in an interview with the Financial Times.

Ki-Jeong Ko Chi-Young Shin koh@donga.com higgledy@donga.com