The Global Economic Polycrisis and the Korean Economy

Today the global economy is facing down the threat of a multifaceted crisis. Sustained by ultra-low interest rates and unprecedented levels of quantitative easing since the last global financial crisis, the global economy is taking a sharp turn toward tighter monetary policy as it experiences rampant inflation (in some countries at a 40-year high). As the economy has yet to recover fully from the impact of the COVID-19 pandemic, this has produced a looming threat of a recession and led to uncertainties stemming from soaring interest rates amid record highs in debt. On the other hand, the intensifying US-China rivalry for global hegemony — recently put on full display in Washington’s new national security strategy, its sanctions on semiconductor exports to China, and the Chinese Communist Party (CCP)’s latest congress — poses additional, grave threats to the global economy. The continuing antagonism between the G2 countries will exert an impact beyond a simple decoupling of the two economies: it threatens to destabilize the global trade environment. Amid all this, climate change continues to add to the long-term risks faced by the global economy. Most importantly, all these disruptive factors can interact with one another to produce results that are far more difficult to predict and even more devastating. A global recession and ever-higher interest rates will adversely affect long-term investment in the energy transition, while the intensifying US-China rivalry also stands in the way of encouraging globally-concerted efforts to fight and mitigate climate change. The longer the delay in the global response, the greater the inevitable cost of climate change. These multifaceted global problems have converged to generate a state of polycrisis. This paper explores the nature of this polycrisis, its effects on the Korean economy, and identifies the implications carried for policy.