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Economic Outlook for 2012

Economic Outlook for 2012

Sept. 21, 2011

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Up until the first half of 2011, the world and Korean economies had shown a relatively rapid recovery from the 2008 global financial crisis. However, in the second half of 2011, negative side effects of the economic stimulus packages began to surface. Due to massive fiscal spending to fight the crisis developed countries have had to take on massive fiscal debt, furthering concerns about a new crisis. Against this backdrop, developed countries have adopted austerity measures to stem a new crisis, which has clouded the global outlook.

Emerging economies on the other hand have enjoyed a relatively robust recovery but now face an unexpected difficulty: rising inflation. Massive liquidity injected by developed countries has cascaded into emerging countries, pushing up inflationary pressure. In addition, the Middle Eastern political crisis and recent adverse weather events have ignited sharp run-ups in food and oil prices. Thus, emerging economies are implementing austerity measures in the monetary sector to stifle inflationary pressure, risking a contraction in the domestic economy as a result.

In short, three years after the crisis, the global economy is facing a new crisis, mounting fiscal debt in developed countries. This has increased the possibility of slow long-term growth in the Korean economy, and in the global economy as well.

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