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(News Focus) Uncertainty over quantitative easing darkens outlook for Korean economy
By Koh Byung-joon
SEJONG, June 14 (Yonhap) -- Uncertainties are growing in the global financial markets caused by speculation that advanced countries might roll back their expansionary monetary and fiscal policies, which experts worry could spark an exodus of capital from emerging markets.

   The heightened uncertainty and market jitters are casting a dark cloud over the South Korean economy, posing a tough challenge for its government now striving to kick-start the prolonged slowing economy.

   The world financial markets have been undergoing volatile sessions since May 20 when the U.S. Federal Reserve hinted at pursuing a so-called "exit strategy" from its expansionary stimulus policy stance within this year.

   Volatility intensified especially on Thursday when stocks in major countries lost significant ground.

   Japanese stocks were among the hardest hit. On Thursday, the Nikkei 225 index closed at 12,445.38, down 6.35 percent from the previous trading day.

  


Stock markets in the U.S. and Taiwan lost ground, while South Korea's benchmark KOSPI also fell to its lowest level in seven months on Thursday.

   Analysts blamed the global stock market swoon on worries that back-to-back steps by major advanced countries to unwind money they have injected into their economies could spark rapid outflows of capital from emerging markets.

   "If the U.S. eases its quantitative easing policy, money that has been flowing into the global financial markets would make a U-turn to the U.S., thus causing a great deal of volatility in stock and foreign currency markets in emerging countries," said Jeon Hyo-chan, an economist at the Samsung Economic Research Institute.

   Kang Dong-soo, a senior researcher at the state-run think tank Korea Development Institute, generally echoed this view, saying "It was just like the market staying alive with painkillers but now as the doctor says that he will stop prescribing them, the market seems to be resisting."

   Experts worry that the recent market fluctuations are not a temporary phenomenon but that things will continue for the time being since speculation that the U.S. might start rolling back its money will continue throughout this year.

   Observers did not think such market jitters would have an immediate impact on South Korea's economy but worried they would eventually emerge as a potential downside factor that could hamstring the government's efforts to stimulate the slowing growth.

   The Seoul government has engaged in diverse stimulus efforts including a 17.3 trillion won (US$15.27 billion) supplementary budget and a set of policies aimed at boosting the slumping property market along with measures to boost investment in the corporate sector.

   The Bank of Korea also slashed its benchmark interest rate by 0.25 percentage point in May in an apparent bid to help the government effort to keep the economy going.

   Those moves come amid growing concerns that Asia's fourth-largest economy might be sliding into a prolonged low-growth trend.

   The country's gross domestic product has grown less than 1 percent for the past eight straight quarters. The Korean economy grew 2 percent in 2012, the slowest advance in three years.

   Meanwhile, in response to the recently heightened uncertainty, the government cautioned against having an oversensitive reaction while calling for more time to analyze the unfolding developments.

   The government, however, admitted that there are few options to choose from in coping with such external factors over which it has no control.

   "The government has said that uncertainty could intensify in the second half of this year and that was about these latest situations," a high-ranking government official said on condition of anonymity. "There is no need to react sensitively. But we also have few appropriate measures to take at this moment."

   Experts view his comments as saying that the government will continue monitoring the market closely without taking any significant steps in response, but remain ready to take fine-tuning measures, if necessary.

   kokobj@yna.co.kr
(END)
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