[Book Sip] The South Korean Economy Facing the Threat of Stagflation

Some sentences encapsulate the entire content of the book itself, while others instantly reach the reader's heart, creating a connection with the book. We introduce such meaningful sentences excerpted from the book. - Editor's note

This is a tightening economic outlook book by Professor Kim Kwang-seok, a leading economist in the fields of real economy and economic policy, containing all insights on inflation response strategies and interest rates. It teaches how to face the soaring global economy amid rising inflation, led by the highest U.S. inflation in 41 years. Additionally, it discusses the phenomenon of hyperinflation occurring in the recovery phase after the pandemic economic crisis, the correlation between interest rates and prices, the monetary policy stance of major countries including the U.S., and forecasts and response strategies for the real estate and stock markets amid these economic trends.

The U.S. economy is experiencing inflation, while emerging countries are at the early stage of stagflation. Because inflationary pressure is stronger in the U.S. than in any other country, whether it is a big step or a giant step, it must be deployed. The economy is also supported by a solid flow. However, emerging countries are still struggling with sluggish economic flows, unable to escape the shock of COVID-19, and face the threat of stagflation where only the burden of prices increases. Therefore, when the U.S. rushes with a big step, emerging countries can only watch rather than follow. If they raise the base interest rate to curb inflation, they risk being caught by an even scarier villain called economic recession. __ p.7

South Korea is facing the threat of stagflation. An economy where the economic scale shrinks, unemployment rises, income decreases, and only prices rise can be defined as stagflation. In other words, stagflation is an economy where recession and inflationary pressure come simultaneously.

As everyone knows, an economy with high prices and high growth is inflation. Conversely, low prices and low growth is deflation. Now, let's pick only the bad ones among these. That is low growth and high prices. The combination of these two is stagflation. Simply put, stagflation is a flow where growth and prices move separately. __ p.198

So how should we respond in the era of a strong dollar? I would like to point out three things.

First, when the dollar strengthens, the capital market will become more chaotic. As foreigners withdraw investment funds, it is unlikely that a bull market in Korean stocks will be expected. Investors need to be careful in their investment strategies and portfolio composition, but this phenomenon may lead to corporate investment contraction and induce further economic recession. __ p.217

The Era of Tightening | Written by Kim Kwang-seok | 21st Century Books | 300 pages | 19,800 KRW

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