Advertisement
Macroscope | South Korea’s outlook is foggy, but will ‘stopping the car’ help?
- Among the biggest vulnerabilities in the world economy are overheated real estate markets, the threat of a full-blown recession and the heightened risk of policy mistake by central banks
- No other nation is having to contend with them as intensely as South Korea
Reading Time:3 minutes
Why you can trust SCMP
Spare a thought for Rhee Chang-yong, South Korea’s central bank governor. Just weeks after he assumed office in April last year, the US Federal Reserve embarked on its aggressive interest rate-hiking campaign, putting an end to a decades-old regime of low inflation and low borrowing costs.
Advertisement
At the time, South Korea – an open, export-driven economy long seen as a bellwether for global trade – appeared to be ahead of the curve, having been the first major Asian economy to raise rates in August 2021 in response to concerns about the surge in household debt and property prices during the Covid-19 pandemic.
Yet, almost one year on, the challenges facing Asia’s fourth-largest economy and the world’s seventh-largest exporter are more acute. At first glance, this reflects the dramatic shift in market expectations of how much further global borrowing costs are likely to rise.
Advertisement
Over the past month, investors have ramped up their bets on US benchmark rates peaking at a significantly higher level than what was priced in January, causing a sharp sell-off in stocks and bonds.
On closer inspection, however, it is clear South Korea’s problems extend beyond US monetary policy. Among the biggest vulnerabilities in the world economy are overheated real estate markets, the threat of a full-blown recession and the heightened risk of policy mistake by central banks.
Advertisement