By Lee Hyo-sik
Staff Reporter
Exports, Korea's main growth engine, could shrink sharply in coming months as deteriorating global economic conditions reduce overseas demand for made-in Korea products, LG Economic Research Institute warned Sunday.
The institute said in a report that an economic downturn in the United States and other advanced economies in the wake of the international financial market turmoil is increasingly spreading to the rest of the world, adding if China, India and other emerging economies head downward, the nation's outbound shipments will hit a snag.
``The so-called September crisis, fueled by the massive dollar outflow, rising short-term debts and falling foreign reserves in recent weeks, will not likely materialize. But the world's 13th largest economy is widely expected to go downhill for the foreseeable future on slowing exports, coupled with the continued sluggish private consumption and corporate investment,'' it noted.
According to the Ministry of Knowledge Economy, exports expanded 20.6 percent to $37.4 billion in August from a year earlier. But the growth is down from a 36 percent gain the previous month as shipments of textiles, consumer electronics and automobiles to the U.S. and other developed economies grew at a slower pace. Consumers tightened their belts to cope with rising household debts and inflation amid deteriorating economic conditions.
``Exports rose over 20 percent last month, but a larger portion of a double-digit increase is due to higher export unit prices as exporters raised prices in line with rising raw material costs. In terms of volume, outbound shipments saw a single-digit increase,'' the institute said, adding business sentiment index for exporters has fallen sharply over the past two months on an increasing pessimism about the global economy.
It projected Korea's exports to China and developing countries will dwindle as slowing U.S. and European economies, weighed down by the ongoing U.S. housing market slump and financial market debacle, have a negative impact on emerging economies.
``Falling oil prices will improve Korea's trade balance. But the deteriorating global economy will dampen its outbound shipments, which will force companies to cut production, withhold new investments, and refrain from hiring new workers. Coupled with sluggish domestic consumption, falling exports will prolong the economic downturn here, the institutes warned.
It suggested that the government should implement a series of stimulus steps, including increasing fiscal spending, to prop up domestic demand and moderate the pace of economic slowdown.