World Bank releases report warning global economic recession

The World Bank released a report warning of a global economic recession. Inventories of Korea's local companies reached a record high in 26 years, sending warning signals. The Korean won-dollar foreign currency rate continued to rise recently, even breaching the 1,400 won per dollar mark at some point today. Fear of a possible global economic downturn is spreading both locally and overseas.

The Korea Chamber of Commerce and Industry (KORCHAM) said on Friday that the index of manufacturers' inventory, which demonstrated industrial activities trend for the second quarter of 2022, increased by 18.0 percent, a record high in 26 years since the second quarter of 1996 (22.0 percent) when the Asian financial crisis was imminent. The inventory index is one of the key business-forecasting indicators released by Statistics Korea. It turns corporate inventory volumes in a given period into numbers and makes it easier to grasp how much has increased or decreased. The KORCHAM analyzed that the index strongly indicates not just a temporary economic adjustment due to external factors but a possible long-term global business slowdown beginning in earnest.

On Thursday, the WB published a report titled "Is a Global Recession Imminent?" which noted that a 50-year-high global benchmark interest rate may have protracted financial consequences for emerging markets and developing economies. The report also warned that even a smallest shock could bring about a worldwide economic downturn due to numerous business uncertainties, including the U.S., China, and Europe, the top three economies of the world, possibly all plunging into economic slowdowns at the same time.

The WB report wrote that the central banks of many nations may have to raise the interest rate by two percentage points additionally (higher than initial investor forecasts) to achieve their low inflation targets, in which case the economic growth rate for the year 2023 may be decreased to 0.5 percent and individual standard economic growth rate reduced to negative 0.4 percent. According to the institution's outlook, that may theoretically be translated as the global economy falling into a recession.

The Korean government also warned for four consecutive months that the national economy might face a possible downturn. "Amid continued high inflation and declines in some indicators of economic sentiment caused by external factors, there are concerns of economic slowdown such as a drag on export recovery in the future," the Korean Ministry of Economy and Finance said in the September issue of its "Green Book (a monthly bulletin on the nation's current economic trends).”

The Korean won-dollar exchange rate closed at 1,388 won at the foreign exchange market today after reaching as high as 1,399 won, a 5.3 won increase from the previous day. The highest FX rate point today was a record in 13 years and five months since March 31, 2009, when the rate reached 1,422 won.


Hyoun-Soo Kim kimhs@donga.com · Do-Young Kwak now@donga.com