NABO Economic Trends & Issues (No. 70)
23 August 2018
Macro-Economic Analysis Division of the Economic Analysis Bureau
I. Economic Trends
Recently, the Korean economy has witnessed a continued weakening of investments and domestic demand, worsening the employment situation. Although exports in August recorded an increasing trend backed by the flourishing global economy, plant and equipment investment as well as construction investment remained weak. Consumer prices were consistent with that of the previous month, but core inflation appeared subdued. The won-to-dollar exchange rate increased significantly (by 2.7%) from the previous month due to concerns about US-China trade disputes becoming a long-term issue and concerns about an economic crisis in emerging markets, and treasury bond interest rates (3-year-maturity) decreased as factors such as expectations of monetary policy changes at home and abroad were reflected.
Ⅱ. Examination of the Financial Stability of EMEs Following the US Interest Rate Hike
Concerns are building about financial instability in emerging market economies (EMEs) as the currency value in these regions drops and EMEs experience a flight of foreign invested capital due to the FRB’s raising of US interest rates and concerns about an acceleration of interest rate hikes. An analysis of major EMEs’ ability to repay foreign debts as well as their current account balances revealed that some of these countries exhibit weakened financial stability. Therefore, there needs to be stronger monitoring of EME risks that could materialize from the US FRB’s interest rate raises and risk management methods need to be developed to prevent the financial instability of EMEs from spreading to Korea.
Ⅲ. The Corporate Restructuring System of Japan and Examples
Japanese banks suffered from management problems as they went through inadequate restructuring since the asset bubble burst in the early 1990s. The Japanese government adopted a restructuring strategy that included a corporate stimulus scheme (legal and private restructuring) and a business reform scheme. In particular, since the Japanese government enacted the Special Act on Innovation for Invigorating Industry in Japan (1999) it has actively encouraged government-led business reform, offering tax incentives and encouraging around-the-clock restructuring, thereby supporting business reform at the industry level. Japanese companies began to strengthen their competitiveness through restructuring efforts that included cost reductions, investment expansion and business restructuring, and started to generate profits in terms of costs and operations. The environmental changes in the global economy also pose an important challenge for Korean companies, and it is necessary to take pre-emptive measures regarding cost reductions and productivity increases to minimize market risk exposure.