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(EDITORIAL from The Korea Herald on June 2)

All News 07:08 June 02, 2016

Rough waters ahead
Korean economy faces growing uncertainty

The outlook for the Korean economy is getting increasingly murky as uncertainty is growing over U.S. monetary policy, the referendum in Britain on European Union membership, and the ongoing restructuring of ailing companies.

A strong headwind is blowing for Korea, as the U.S. central bank is likely to raise its key interest rate in the coming months.

Federal Reserve Chair Janet Yellen said Friday that an interest rate hike in the coming months would "probably" be appropriate. She did not specifically mention a rise in June, but her Fed colleagues have recently hinted at such a possibility.

In addition, minutes from the April meeting of the Fed's policymaking committee show that some of its members specifically referred to the June meeting as a possible time for a rate-hike vote.

Yellen said the U.S. economy appears to be picking up after weak growth in the first quarter of the year. Referring to the 14 million new jobs created since the lowest point for employment, she said the U.S. economy has made a great deal of progress.

As the Fed is expected to make another interest rate hike this summer, the government needs to be prepared for the downside risks to the economy.

A U.S. rate increase is bad news for Korea, as it could prompt interest rates here to go up at a time when a rate cut is needed to bolster the weakening recovery momentum.

One week after the Fed holds its June meeting, British voters will go to the polls to decide whether their country should leave or remain in the European Union. The latest opinion polls show that the British public is fairly evenly split.

A British exit from the EU would have enormous consequences for the world, as it could shake the very foundations of the 28-member bloc.

It would also send shockwaves through the global financial markets. The value of the British pound could plummet as London might lose its status as Europe's financial capital.

The Korean government needs to be prepared for the fallout from Britain's potential departure from the EU.

Domestically, uncertainty is growing as corporate restructuring gathers pace. June is a month of reckoning for ailing shipbuilders. Creditors are expected to cut support for hopeless dockyards, as they did for STX Offshore and Shipbuilding last week.

Policymakers also need to come up with measures to ensure that full-fledged corporate restructuring does not damage the resilience of the economy.
(END)

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