IMF Managing Director: "The Global Economy Is Walking with Three Stones in Its Shoes"

Obstacles to COVID-19 Recovery: Inflation, Debt, Vaccine Gap
European Natural Gas Prices Soar 10x in 6 Months... Cotton Prices Hit 10-Year High
Inflation Triggers Interest Rate Hikes... Foreign Investors Sell Off Domestic Stocks

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF)
[Photo by EPA Yonhap News]

[Asia Economy Reporters Byunghee Park, Minji Lee] "It feels like walking forward with a stone inside your shoe."

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), used this metaphor to describe the current global economic situation during a virtual speech at an event hosted by Bocconi University in Italy on the 5th (local time). It means that although the global economy is recovering from the COVID-19 phase, there are many obstacles limiting the pace of recovery. The stones she pointed out are inflation, debt, and the vaccination gap between developed and low-income countries.

As global investors' anxiety expands, the Korean stock market has been hit by shocks day after day.

Natural Gas Price Multiplied by 10 in 6 Months... Uncertainty Increases

In particular, the recent unexpected rise in prices is increasing uncertainty in the global economy. Jerome Powell, Chair of the U.S. Federal Reserve (Fed), stated at last week's Senate Banking Committee hearing that "inflation could remain elevated longer than expected," marking a shift from the previous stance that inflation was temporary. Managing Director Georgieva also warned of the possibility of a rapid price surge, saying, "If inflation rises faster than expected and threatens economic recovery, central banks must be prepared to respond quickly."

The recent trend in energy prices is adding to the severity. According to Bloomberg and others, European natural gas prices have increased tenfold over the past six months. On this day, the November futures price for natural gas at the Netherlands TTF exchange surged 22% from the previous trading day to 117.9 euros per MWh.

Six months ago, natural gas prices were only 18 euros per MWh. With reduced fossil fuel investments and supply restrictions from Russia, Europe's largest gas supplier, supply has decreased, and with heating demand soaring ahead of winter, natural gas prices are skyrocketing.

UK natural gas prices also surpassed 3 pounds per therm (a unit of heat) for the first time ever. The surge in natural gas prices is shaking even the European financial markets. Due to concerns that rising gas prices will increase economic uncertainty, investors massively sold UK government bonds. The yield on the UK 10-year government bond rose 0.08 percentage points from the previous day to 1.09%.

Cotton prices are also causing inflationary concerns. On this day, U.S. cotton futures traded on the Intercontinental Exchange (ICE) closed at $1.0893 per pound, up 3.8% from the previous day ($1.0493), marking the highest level since September 2011. Cotton futures have risen 22% over the past 11 trading days. The conflict between the world's top two cotton producers, the U.S. and China, is the cause of the sharp rise in cotton prices.

In January this year, under the Trump administration, the U.S. Customs and Border Protection (CBP) under the Department of Homeland Security banned all imports of cotton products from China's Xinjiang Autonomous Region, amid allegations of forced labor by Uyghurs. China is the world's second-largest cotton producer, with about 85% of Chinese cotton produced in Xinjiang.

In 2019, China exported about $50 billion worth of cotton and cotton textile products to the U.S. The Wall Street Journal (WSJ) reported that rising cotton prices in the U.S., the world's largest cotton producer, are increasing pressure to raise prices for clothing made from cotton.

Concerns Over Financial Tightening... "Central Banks Must Be Ready to Respond Swiftly"

On this day, Managing Director Georgieva expressed concerns that inflation could trigger interest rate hikes and lead to global financial tightening. She also emphasized the need for central banks to be prepared to respond quickly if inflation rises faster than expected.

Georgieva urged developed countries to increase vaccine distribution to developing countries to close the vaccination gap, warning that failure to reduce this gap could result in a $5.3 trillion loss in global GDP over the next five years. According to Our World in Data from Oxford University, 46% of the world's population has received at least one vaccine dose so far, but in low-income countries, this rate is only 2.3%.

Foreigners’ Selling Leads to Reversal and Decline in Korean Stock Market

On the 6th, the Korean stock market, which showed a strong rebound in the early session, reversed and declined as foreigners dumped shares. By 11 a.m., foreigners recorded net sales exceeding 90 billion won across both the KOSPI and KOSDAQ markets. In particular, in the KOSPI 200 futures market, net sales exceeded 340 billion won, pulling the index down.

Sell-offs in biotech stocks continued, with Samsung Biologics and Celltrion weakening on the KOSPI, and the decline was relatively larger in the KOSDAQ market, where biotech stocks dominate the market capitalization rankings.

This content was produced with the assistance of AI translation services.