[The Editors' Verdict] It's a Crisis, But Better Than 2008

The Korea Employers Federation (KEF) conducted a survey of economic experts (204 professors in economics and business administration) regarding the 'recent economic situation and major issues.'

In response to the question, "Compared to the 1997 IMF foreign exchange crisis and the 2008 financial crisis, how would you rate the current Korean economic situation?" 6.9% of respondents answered that it is "similar to or worse than the 1997 IMF foreign exchange crisis." 18.7% said it is "worse than the global financial crisis," and 27.1% said it is "similar to the 2008 global financial crisis." Meanwhile, 47.3% responded that "the Korean economy is not in a situation as difficult as during the IMF foreign exchange crisis or the global financial crisis."

52.7% said the situation is similar to or worse than the global financial crisis, while 47.3% said it is not that severe. The opinions are roughly split in half, but most media outlets chose headlines stating that our economy is similar to or worse than the 2008 global financial crisis. Even the more objective sources included in their headlines that half of the economic experts see it that way. However, no headlines highlighted that 47.3% believe the situation is not that severe.

Most media believe that sensational headlines attract more readers. They think it is appropriate to report with phrases like "crisis" or "disaster." Hence, titles such as "economic complex crisis," "financial crisis," and "foreign exchange crisis trauma" are frequently seen.

It is true that our economy is facing difficulties. Globally, inflation is ongoing, and with the U.S. raising its benchmark interest rate, the Bank of Korea has no choice but to follow suit. Households and businesses will feel the pain of high interest rates. There is also a risk of default on real estate project financing (PF) loans due to the real estate market downturn. Securities firms and capital companies that invested in high-risk projects chasing profitability will face hardships. As the global economy contracts, exports are likely to worsen next year. There have even been sudden liquidity crunches in the bond market, such as the Legoland incident.

Due to the trauma from the 1997 foreign exchange crisis and the 2008 global financial crisis, many people worry about capital outflows, foreign exchange crises, and financial crises. Of course, it is necessary to maintain a sense of crisis and respond accordingly, but the reaction seems somewhat excessive.

There is no need to view the situation so negatively. Next year's economic growth rate is expected to be around the mid-1% range. It will not be negative. The current account surplus is expected to be about $30 billion next year. According to the Bank of Korea's September international balance of payments report, foreign investors' net domestic bond investment was $73.8 billion last year and $28.4 billion from January to September this year. Korea has almost no risk of national default, and the real interest rate adjusted for inflation is higher than in other countries. It is not appropriate to look only at nominal interest rate differences.

The net external financial assets, which is the amount Koreans have invested in overseas financial assets minus the amount foreigners have invested in domestic financial assets, stood at $744.1 billion as of the end of Q2 this year. At the end of Q3 2007, it was negative (-) $216 billion. Foreign exchange reserves at the end of October this year were $414 billion, compared to $262.2 billion at the end of December 2007.

The banks, the core of the financial system, are stronger than ever. Looking at the three major indicators?liquidity, soundness, and profitability?during the 1997 foreign exchange crisis, all three indicators were at their worst due to large-scale corporate insolvencies that also weakened banks. During the 2008 financial crisis, soundness and profitability were fine, but liquidity was problematic. Currently, all three indicators are in good condition.

A few years after 2008, banks also struggled with defaults on real estate PF loans. Most banks had real estate PF loan delinquency rates around 10%, and some banks reached 30%. Learning from that experience, banks recently have only handled PF loans for high-quality projects, and concerns about PF loan defaults are low.

When banks are strong, they can serve as a pillar during difficult market conditions. Recently, banks have actively stepped in to stabilize the market amid liquidity crunches and have also been supporting vulnerable groups. Having experienced several crises, the government and financial authorities have expanded various systems and institutions and are clearly willing to intervene in the market.

In conclusion, while 52.7% of experts view the current situation as similar to or worse than 2008, 47.3% believe it is not that severe.

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