Money is leaving Korea for a safer haven, pulling down stocks and weakening the Korean currency ― spurred by the eurozone’s increasing exposure to the risk of a Greek exit. Moreover, growth is slowing in China, the largest market for Korean exports.
Few would say, however, that the flight of capital is at a dangerous level. Still, it is serious enough for the Korean government to dust off its past contingency plans for a fresh look and prepare itself to draw up a new one should Greece leave the eurozone, triggering another global economic disruption.
Korea is already feeling the pinch from a looming crisis in the eurozone and a slowdown in China. Korean exports to the European Union and China in April fell more than 20 percent and almost 3 percent, respectively, from a year ago. No less serious was a 22.8 percent decline in shipments to Japan, one of Korea’s largest markets.
The fall in exports to those three markets was compensated for, to a considerable extent, by an increase in shipments to the United States, the Middle East and South America. Still a 4.8 percent drop in total exports was a serious matter for Korea, which has to generate much of its growth by increasing exports. It bode ill for the nation’s growth target.
No wonder the Bank of Korea lowered the nation’s 2012 growth outlook from a modest 3.7 percent to 3.5 percent last month. It may have to make a downward readjustment again, should the global economic conditions worsen in the months ahead.
But the administration, though troubled by the eurozone’s anguish over Greece, is still sanguine about the nation’s economic prospects.
In a recent interview with our sister newspaper, the Herald Business, Minister of Strategy and Finance Bahk Jae-wan said there was no change in his belief that the Korean business would be in better shape in the second half of this year than in the first half.
He justified his assessment with the central bank’s forecast of eased inflationary pressure and an improving job market. In other words, he believed that the Korean economy would prove to be healthier even if the nation did not attain this year’s growth target of 3.7 percent.
But the central bank’s renewed growth forecast may still be too high, given that it may not reflect the growing possibility of a Greek exit from the eurozone. As such, Bahk’s appraisal may not have been anchored in a firm foundation.
Moreover, the Greek trouble is not confined within the borders of the debt-laden European country. Instead, it has been spreading across the financial markets around the world. With the possibility of Greece leaving the eurozone strengthening, the U.S. dollar has been gaining and stock prices have been falling around the world.
Final talks to form a coalition government failed last week, sending not just Greece but the entire eurozone into turmoil. The chances are higher now that Greece will leave the eurozone as the radical leftist parties that are opposed to austerity are most likely to take power in the elections scheduled for June 17.
When the new elections were announced, the economic conditions fast deteriorated in Greece, one of the PIGS ― the European countries whose public finances are in serious trouble. Though a bank run was too loaded a phrase to use to describe deposit withdrawals in Greece, news reports said depositors withdrew more than $1 billion from Greek banks last week. Spain, another country among the PIGS, struggled to contain rumors that cash was being withdrawn from bank deposits in droves.
Top Korean policymakers appear to be complacent when they say, claiming no imminent threat to the domestic economy, that it is not necessary to raise the red flag now. Instead, they say they will take the time to watch the global market trends and determine whether or not they will have to take any precautions.
But the administration needs to keep itself alert so that it can take emergency measures without delay to shield the nation from global distress if the crisis in Greece worsens.
