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Outlook for the Korean and Global Economies in 2012

Outlook for the Korean and Global Economies in 2012

Dec. 1, 2011

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The collapse of US investment bank Lehman Brothers in September 2008 triggered a severe credit crunch in global financial markets, and its impact spilled over to the real economy causing a rapid contraction in global economic growth. Prompt, decisive and coordinated international efforts, however, blunted the crisis and the global economy recovered at a faster-than-expected pace.

Although international policy coordination was credited for averting a global economic meltdown, the financial crisis is not completely behind us yet. The underlying negative effects of the emergency measures have become more and more apparent in the latter half of 2011, and the risks of the global economy relapsing into a recession are mounting.

In other words, the world economy has entered a new crisis phase. Rising inflationary pressures are driving emerging-market economies into tighter monetary policies, while the soaring public debt levels are deepening the risk of a fiscal crisis in developed countries. With the crisis in the private financial sector transforming into a sovereign debt crisis, the global economy’s prospects are darkening, with the risk of another recession escalating and financial market remaining highly volatile.

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