In the face of stagflation caused by supply-side disruptions, countries around the world have prescribed measures to overcome the shortage of demand, but they have failed repeatedly. When money was released to lower the unemployment rate, prices soared, and when fiscal and monetary tightening were operated to curb severe inflation, the unemployment rate rose again. I have experienced that it is impossible to control employment and prices at the same time with policies.
Concerns about stagflation, which has been lost in memory for some time, have resurfaced in recent years. Worldwide, energy, raw materials, and food prices are on the rise. Oil prices have exceeded $80 per barrel for the first time since 2018, and natural gas prices are also rising steeply. Food prices have jumped more than 30 percent from last year, and other raw material prices are at their highest level in the past decade. In addition, since the outbreak of “COVID-19,” quarantine regulations and job openings have overlapped, causing various fares to soar and inflationary pressure to increase.
In such a situation, the global economy, shocked by the COVID-19 incident, has not yet properly recovered its growth engine and has not escaped the stagnation. In particular, as China’s growth, the engine of the global economy, slows down, the economic slowdown is spreading to Asian countries closely linked to the Chinese economy.
How should we combat the long-forgotten threat of stagflation? The world, which has released astronomical money due to the COVID-19 pandemic (global pandemic), cannot release more money to overcome the recession. In order to catch the real estate that has already soared and prevent the indiscriminate spread of inflation, it is necessary to tighten. Some countries have already begun raising interest rates, which symbolize austerity.
The prevailing view is that the current supply chain disruption and energy supply and demand crisis will not be as long-term and structural as it was in the 1970s. However, there is a possibility that the recession will be unexpectedly prolonged due to the confusion created by the economic war between the U.S. and China. Although the Korean economy has always come up with countermeasures one beat later than the Western economy, it is necessary to respond more preemptively this time.
Efforts shall be made to secure energy, food, and basic resources in advance. It is also urgent to restore the international logistics system centered on the shipping industry. In the long run, global supply chains should also be carefully reviewed. Establishing a system that can complete the value chain without being swayed by threats from the international supply chain is a key condition for running our economy stably.