Major World Economies Eye Stimulus Plans

As the U.S. financial crisis sends shockwaves throughout the global market, central banks and governments of major economies are rushing to implement stimulus measures such as interest rate cuts and higher state spending.

The crisis has rapidly spread to the real economy. U.S. manufacturers last month posted their worst showing in seven years and unemployment in European Union countries jumped to 7.5 percent in August.

Fortunately, international oil prices have fallen since the economic slowdown is expected to reduce fuel demand. Lower oil prices are a gleam of hope since they contribute to controlling inflation and allow economic stimulus measures such as interest rate cuts.

○ European Central Bank to freeze key rate

Despite announcing Thursday that the benchmark EU interest rate will stay at 4.25 percent this month, European Central Bank President Jean-Claude Trichet suggested the possibility of a rate cut.

He said the threat of consumer inflation has not disappeared in the eurozone but has somewhat weakened, adding economic activity has slowed due to a drop in domestic demand and a credit crunch.

If the bank cuts its benchmark rate next month, it will be the first since June 2003, when it made a cut from 2.5 percent to two percent.

A rate cut in the United States is also highly likely when the Federal Open Market Committee holds meetings Oct. 28 and 29.

The Wall Street Journal said the Federal Reserve Board is considering a cut in the federal fund rate regardless of what happens to the congressional bailout bill.

○ Australia takes preemptive fiscal action

Certain governments will expand budget spending to boost their economies amid sluggish private consumption and weakening corporate investment.

Australia will move up by three months spending an infrastructure building fund worth 15.5 billion U.S. dollars.

China is also expected to announce an economic stimulus package before or after the 17th Central Committee of the National Congress of the Communist Party opening Oct. 9.

Beijing has the luxury of spending more budget as consumer inflation reached just 4.9 percent in August, almost reaching the government’s goal of 4.8 percent. Its fiscal surplus amounted to 1.3351 trillion yuan.

○ Korea mulls revising budget

Economists said the Korean government also needs to consider expanding its budget spending as the country’s economic downturn has accelerated.

Oh Mun-seok, senior researcher at LG Economic Research Institute, said, “The government needs to increase its spending to the point that it does not damage fiscal soundness, as the economic downturn is likely to accelerate. A supplementary budget can be a good measure.”

Seoul is also willing to revise its budget for next year if necessary. Vice Strategy and Finance Minister Bae Kook-hwan said Wednesday, “The U.S. financial crisis appeared after we decided on the budget for 2009. The government is willing to discuss the budget with the National Assembly if conditions surrounding the Korean economy change.”

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