The Nikkei stock average of Japan decreased by more than five percent Tuesday on Christmas. Major stock market of Asia including China’s Shanghai composite index was also sluggish. This is due to the plummeting New York stock market where the Dow Jones Industrial Average fell by 2.9 percent on Monday (local time), which was the biggest Dow on Christmas in the 122-year history of the New York stock market. It has also been analyzed that the New York stock market ended its 10-year up-phase and entered the down-phase in earnest.
The global stock markets used to continue the "Santa rally," where stock prices increase at the end and beginning of the year as it is a time where consumption increases and investment psychology improves. This year, however, witnessed a "black Christmas." It was triggered by U.S. President Donald Trump’s criticism over the Federal Reserve System. Yet, this is only a superficial reason. Negative economic outlook shrank investor psychology. Such concern is supported by a downfall in international oil price, which is sensitive to the economy, by more than six percent in a single day.
The OECD downgraded the global growth for next year from 3.9 percent in July to 3.7 percent in October. This is a result of the disappearance of the liquidity effect, which supported the global economy ever since the 2008 global financial crisis, coupled with credit crunch of emerging countries. This is not the first time an alarm for such economic slowdown went off but we cannot overlook the fact that the New York stock market fell for four straight days. In other words, global economic stagnation is not far away.
The problem is Korea’s economy. It is not only difficult for Korea to stay out of such flow but also go through more damage as it is a small-sized open economy that relies heavily of exports. Korea was able to endure barely with semi-conductor export but now the semi-conductor boom is also close to the end. Semi-conductor facility investment for next year is expected to decrease by 7.8 percent than this year, according to the industry. It is concerning that Korea, which suffered due to weak investment, consumption, and employment even when the global economy was doing well, may lose what is little left of its growth engine.
Korea’s economy at this point, is blocking unfavorable factors, such as unstable employment and increasing household debt, with government expenditure. An appropriate measure would be to form a structure where the economy can operate from grass-roots economy to large scaled industries in the long term. The key word would be pre-emptive industrial restructuring and regulatory innovation.