South Korea isn't known for making wine, yet Asia's No. 4 economy has an intriguing thing in common with the world's oldest vineyards. Not the grapes -- the rose bushes. Vintners often surround their vines with more fragile vegetation as a kind of alarm system: If some kind of disease or problem emerges, it will show up on the periphery first.
The same is true of South Korea, an open economy vulnerable to sudden shifts in trade flows, with regard to Asia's economic outlook. And at the moment, our rose bush looks vulnerable. Korea is growing at the slowest pace in two years as Europe's sovereign-debt crisis slams exports. Gross domestic product expanded 0.4 percent in the fourth quarter from the third quarter, when it grew 0.8 percent. Not a recession, but surely a signal that Asia hasn't severed its fortunes from the West as cleanly as many investors hoped.
"The thing is, Asia hasn't decoupled," says John Calverley, global head of macroeconomic research at Standard Chartered Bank. "It is better insulated from the West and better diversified, but problems in the global economy will surely hurt Asia."
The good news for Korea is that policy makers have ample ammunition to combat a global slowdown. Its central bank has 325 basis points worth of short-term interest rates to cut, and the government's fiscal position is enviable compared to the West.
The bad news is that 2012 is looking like a year without reliable economic engines. Europe's debt crisis is spreading, the U.S. is walking in place, Japan's deflation is deepening and China's economy is cooling. All this means that South Korea is largely on its own to plant the seeds of healthy growth. And officials in Seoul need to act now. Exports dropped 1.5 percent in the fourth quarter from the third, when overseas shipments gained 2.2 percent.
The odds favor South Korea steering around the worst of any global turmoil this year. If it has proven anything since the 1997 Asian financial crisis, it's that Korea can take a big punch or two and get up again. Asia had just better be aware that its early warning system is showing signs of trouble.
(William Pesek is a Bloomberg View columnist.)