January 1, 2009｜Korean Peninsula
Im Chon Sok
Professor, The College of Commerce and Economics, Konkuk University
For the global economy, with no discrimination between developed or developing nations, with the financial crisis originating in the United States the fall in economic growth rates from the second half of 2008 has been dramatic. Entering 2009, the depth of the economic downturn is expected to become greater. Many economic forecasting institutions predict that for 2009 the economic growth rates of industrialized countries, including the United States, Japan and the EU, will fall to 0% or go into minus figures, and that emerging market economies and developing nations will be unable to avoid a drop in growth rates to a low level of 2–3%.
For the ROK with its high dependency on exports at just below 40% of GDP, while for 2008 economic growth is expected of just over 4%, aided by strong exports, in 2009 with the global economic slump, it can be seen that exports will fall greatly, and the economic growth rate will also drop greatly on 2008.
Meanwhile for Japan, although the proportion of GDP made up by exports is lower than that in the ROK, over the last few years, with the expansion in exports to emerging markets such as China and the increase in export competitiveness due to the low value of the yen, it is in a situation where export dependency has been becoming extremely high (14.7% for 2006). With the global economic slump, it is predicted that for Japan too exports will fall greatly in 2009, and the economic growth rate will also record a negative value.
For China too the proportion that trade (exports plus imports) occupies within GDP has been rising continuously, and in 2007 reached approximately 70%. This intensity of major global downturn, however, brought about an abrupt slowing down of the setting up of the foreign-investor enterprises which have supported China’s exports and in the linked inward flow of direct investment by foreigners, and it is expected that in the future exports will also fall sharply. Consequently there is the prospect that China’s economic growth, which has sustained a high economic growth rate of over 10%, will also become a low growth of the 7%-mark in 2009. If one sees things in such a fashion, for the ROK, Japan and China—possessing the distinguishing feature, although to a lesser or greater degree, of being economies with a very high degree of dependence on other countries—amid the global recession a considerable slump in exports is expected in the future.
Furthermore, these nations all also have something in common in that the United States is either in first or second place in terms of their export markets. For 2007, the shares for the United States in each country’s exports were 12.3% for the ROK, 20.1% for Japan, and 19.1% for China. Consequently, in the event that these nations’ exports to the United States go into a slump, it goes without saying that it will have a boomerang effect on the state of their domestic economies. For the United States, there is the forecast that gigantic economy-boosting measures will be undertaken from the start of the new Obama administration on, and that the economy will move rapidly toward recovery. The United States, however, which has been leading the globalization of the world economy to date, has changed in this economic crisis to being inward-looking; trade-protectionism has risen; and the possibility is high that its role up to this point as the market for imports from the world will shrink greatly. Consequently, in the future, a great decrease in exports to the United States from the ROK, Japan and China is unavoidable, and it is considered that countermeasures are necessary to lessen each country’s degree of dependence on exports to the United States.
The Asian Currency Crisis which occurred in 1997 came to be a turning-point which forced the acknowledgement of the importance of intraregional economic cooperation on the nations of Asia. In the East Asian region, however, the formation of an intraregional economic cooperation body, straddling the countries and regions within one entire area as with the EU and NAFTA, has not been reached, and the ASEAN Free Trade Area and FTAs between ASEAN and the ROK, Japan, and China have only just begun. An FTA among the nations with a large economic share within the East Asian region, like the ROK, Japan and China, has remained at either the cessation of negotiations stage or at the exploratory stage.
Consequently, in the face of this worldwide recession and the large decrease in exports predicted to occur in the future, a response is called for of reducing export-dependency on the United States, etc., and compensating for it with an expansion of intraregional economic cooperation centered on the ROK, Japan and China.