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[garykasparov]

Korean think tanks warn of stagflation

Private think tanks warned yesterday that the Korean economy may experience stagflation, which is a combination of stagnation and inflation. The warning came after the central bank announced that commodity prices, the leading indicator of consumer inflation, hit a 9-year-high in February.

A report by the Samsung Economic Research Institute warned that the Korean economy has a possibility of falling into stagflation due to the slowing global economy which is a result of the U.S. economy's slowdown and global inflationary pressure.

"The U.S. economy has entered a recession, according to recent negative economic indices. The world will show signs of mild stagflation due price hikes in raw materials, led by the weak dollar and increased global liquidity," Kwon Soon-woo, a research fellow at SERI, said in the report.

"The Korean growth rate is also slowing, while inflation is expected to rise," he said.

Another private think tank, the Hyundai Economic Research Institute, warned that Korea urgently needs to boost its domestic demand, in case global stagflation stemming from the U.S. recession hits Korea.

"The U.S. central bank's interest rate cut has eased the credit crunch, at the expense of giving up control of rising inflation. Eased capital will flow into crude oil and commodity markets, fueling global inflation," Ju Won, a Hyundai research fellow, said.

According to BOK data, raw material costs year-on-year jumped more than 45 percent the last two months, adding to worries over the already high inflation rate of 3.6 percent in February.

Observers warn that inflationary pressures will discourage corporate investment and employment, which in turn could undermine consumer income and private spending.

The Korean economy is slowing down. Although President Lee Myung-bak's government set the growth target at 6 percent for 2008, the central bank and global investment banks already have revised that down to 4.7 percent to even 3.6 percent.

Whether an economy is experiencing stagflation can vary from country to country.

In the case of the United States, economists call it stagflation when the GDP contracts for two consecutive quarters, and inflation rates breach the central bank's target for two consecutive quarters.

In the case of Korea, there is no clear definition of stagflation. However, economists say that, if the economy fails to meet the potential growth rate of 4.5 percent, or remains sluggish at 3 percent level, then the economy would be in a recession.

Korea achieved a 4.9 percent growth last year.

"I wouldn't call the current situation stagflation. But I agree that the recent developments regarding inflation are worrisome," said Lee Geun-tae, a research fellow at the LG Economic Research Institute.

"It remains to be seen whether oil prices will stabilize and bring down inflationary pressures in the second half," he said.

By Kim Yoon-mi

([email protected])

[bassexpander]

When I first saw the word, "Stagflation" I thought it meant the exponential growth of single people not marrying.

[GoldMember]

Nothing new here. The only thing the 'researchers' are doing is repeating what others have been saying for the past 2 years.
Read about this ages ago on www.gold-eagle.com

Unfortunately Korea is a very wasteful user of commodities, they could learn from those evil bicycle riding Japanese, who are frugal.

[laogaiguk]

[GoldMember]

In order of amount consumed in 2006 in thousand bbl/d and thousand m�/d:

# Consuming Nation 2006 (103bbl/day) (103m3/day)
1 United States 1 20,588 3,273
2 China 7,274 1,157
3 Japan 2 5,222 830
4 Russia 1 3,103 493
5 Germany 2 2,630 418
6 India 2 2,534 403
7 Canada 2,218 353
8 Brazil 2,183 347
9 South Korea 2 2,157 343
10 Saudi Arabia (OPEC) 2,068 329
11 Mexico 1 2,030 323
12 France 2 1,972 314
13 United Kingdom 1 1,816 289
14 Italy 2 1,709 272
15 Iran (OPEC) 1,627 259

Source: US Energy Information Administration

Now compare the population of South Korea to Japan, Germany, or the UK, and you'll find per capita oil consumption in Korea is fairly high.

[igotthisguitar]

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[egrog1717]