hankyoreh

By Kwon Eun-jung, Staff Writer

In the first month of the New Year, major economic indices are getting worse faster than expected. The situation is bad enough that some have voiced concerns that there may be no way out. 　


Above all, figures for exports, the backbone of the Korean economy, are not good. January exports are expected to be lower than the same month last year, the first negative growth for 23 months. Rising international oil prices affect Korean prices and are emerging as a conundrum. Crude prices have been fluctuating since the beginning of the year due to friction between the United States and Iran. It may become difficult to reach the government’s targets of 3.7% economic and consumer price rises below 3.3%.
The grim prospect of stagflation, with low growth and high inflation, is raising its head. “Korea’s rate of export increase will drop from 19.2% last year to between 10% and 20% this year,” predicted Kim Han-soo, Head of International Finance at the Korea Capital Market Institute at a seminar on Wednesday on trends and prospects in capital markets and the financial industry in 2012.
Worsened external conditions due to the European financial crisis were cited as the cause. At 10.1%, the European Union does not account for a large portion of Korean exports compared to China or the US, but it is one of the biggest importers of key Korean items like cars, information and communications, and ships.
Statistics from the Korea Customs Service show that exports to EU states, at 55.7 billion dollars, increased no more than 4.1% over the same period last year. This was not even half the 19.3% increase in total Korean exports in 2011, or the 14.8% increase in exports to the EU in 2010. Economic stagnation in the EU also leads to a decrease in exports to China, which account for 25% of total Korean exports. Because 75% of Korean exports to China are intermediary parts, a reduction in Chinese exports to the EU is inevitably followed by a reduction in Korean exports to China. It is because of this slump in exports that the foreign trade index for January is expected to enter the red for the first time in 23 months. 


Writing in the December issue of a journal published by the Korea Institute of Finance, Sungkyunkwan University professor Lee Geun-yeong estimated that a one percent increase in oil prices would lead to a 0.104% increase in consumer prices for six quarters and a 0.042% drop in GDP. Dubai oil, which cost 103 dollars a barrel in October last year, has gone up to 109.7 dollars a barrel (average price from January 1-17).
Previously, the Hyundai Research Institute forecasted that if Iran blockaded the Strait of Hormuz and caused oil international oil prices to rise to 210 dollars a barrel and sparked a war of at least one year between the US and Iran, Korea would experience stagflation with economic growth dropping to 2.8% and inflation shooting up to 7.1%. 


“The Iran problem is growing against a background of low growth, presenting the risk of a downward turn in the economy,” said Lee Jun-hyeop, a researcher at HRI. “These are external factors, but, given the heavy influence they exert on the Korean economy, we must prepare in ways such as stabilizing the foreign exchange market and diversifying our crude oil supply lines.”

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