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| A man walks past a gas pump in Hwaseong, Gyeonggi Province, as a sign shows the price of gasoline at 1,498 won per liter and diesel at 1,348 won. Gasoline prices have fallen below 1,500 won for the first time since 2009 in line with the decline in global oil prices. / Yonhap |
By Choi Kyong-ae
The relentless fall in oil prices is casting a shadow over the Korean economy, with the country's state and private research institutes rushing to cut their growth forecasts for next year, analysts said Friday.
Many analysts are concerned that falling oil prices will deprive the economy of vitality and add deflationary pressure, leaving the economy to suffer protracted low growth coupled with chronic low consumer prices.
On Wednesday, the state-run Korea Development Institute cut its 2015 growth forecast to 3.5 percent from the previous 3.8 percent to reflect growing external uncertainties and weak domestic spending. The revised projection is lower than the 4.0 percent set by the Ministry of Strategy and Finance and 3.9 percent by the Bank of Korea.
Basically, Korea is one of the countries which benefits from lower oil prices because it heavily relies on exports, and imports most of its energy resources. But falling oil prices are putting downward pressure on consumer prices which were already low at 1.0 percent in November, analysts said.
"Despite cheaper oil costs, Korea's inflation is likely to stay at 1.4 percent for the whole of next year. It means weak spending and low growth will continue for the time being," Samsung Securities analyst Lee Seung-hoon said.
In October, the central bank projected an annual inflation rate of 1.4 percent for this year and 2.4 percent for next year. But in January, it is expected to revise down the 2015 forecast "at least to the upper end of 1 percent due to sluggish domestic consumption," Lee said.
On top of KDI's revisions to its growth outlook, the median growth forecast separately released on Friday, by 17 private-sector research institutes, shows Korea will grow by 3.7 percent next year, slightly higher than an average of the 3.6 percent growth projected by 31 multinational research institutes such as BNP Paribas and UBS AG, according to local media reports.
On the industrial side, construction, shipbuilding and machinery companies look set to suffer from another blow from lower oil prices after they were hit hard by a prolonged slump since the 2008 financial crisis.
"There may be a delay in planned projects or a sharp decline in new orders from the Middle East and other oil-rich countries if their financial status deteriorates due to declining oil prices," Samsung Securities analyst James Huh said.
Hyundai Heavy Industries, Korea's biggest and the world's largest shipbuilder by orders, shifted to a net loss of 2.168 trillion won in the January-September period from a net profit of 374 billion won in the year previous. Ship orders won right after the crisis at cheap contract prices have cut into the shipbuilder's bottom line in recent years.
But most industrial sectors are not vulnerable to low oil prices. Airlines, transportation, tourism and chemical businesses expect their costs to fall and demands to rise, Huh said.
Many brokerages expected gasoline prices based on WTI crude oil to fall to an average of $80 per barrel next year, down 16 percent from this year's estimate of 95 percent a barrel. A combination of oversupply, low demand and the dollar's strength is pushing down oil prices further.
"The WTI oil may fall below $60 per barrel next year if the U.S. dollar continues to strengthen," Kim Jong-soo, an analyst at Taurus Investment & Securities, said. An increase in the dollar's value drives down dollar-denominated oil prices.
If consumers in the U.S. and Europe buy more products from Korea and other global markets on stronger purchasing power amid low oil prices, it will help increase Korea's current account surpluses, Kim said.
Korea posted $70.6 billion in current account surplus for the January-October period.
