By Yoon Ja-young
The U.S. economy is gaining confidence, with diverse indices indicating a recovery. A bullish U.S. economy used to pull Korea’s growth rate up immediately, but economists say it is not that simple these days as the weak yen is expected to hurt Korea’s exporters.
The U.S. posted 5 percent GDP growth in the third quarter, the quickest pace in 11 years.
The country is recovering in private consumption and corporate investment.
Real personal consumption, which makes up two-thirds of the U.S. economy, increased 3.2 percent, and business investment 8.9 percent.
The benchmark Dow Jones index passed 18,000 for the first time.
A U.S. recovery, of course, is never bad for Korea.
“As consumption is recovering in the United States, exports will increase,” said Korea Institute of Finance economist Lim Jean.
“Higher growth in the United States, a big trading partner for Korea, means bigger exports and higher growth for Korea as well.”
However, the effect will be limited, Lim pointed out, because the trickledown effect is not working as well as in the past ― even when exports increase, Korea’s private consumption or investment will not expand as much.
“In the past, an increase in exports immediately led to an increase in private consumption, as those working in the export sector earned money for spending,” Lim said. “However, such a positive effect has decreased.”
LG Economic Research Institute senior economist Cho Young-moo noted a different pattern between recovery and trade.
“Even when the economy recovers in developed countries, including the United States, trade doesn’t increase as much,” he said. “They don’t immediately import goods from other countries.”
He said that as manufacturing powerhouses such as Germany and Korea recovered more quickly after the global financial crisis, the focus has shifted to manufacturing from finance and other services sectors.
“Each country is trying to boost their own manufacturing competitiveness. They prefer using domestic goods,” he said. “The recovery in the United States will have a positive effect on Korea’s exports, but it will be limited.”
Cho also pointed out that the U.S. Fed could raise the key interest rate.
“Then the dollar will strengthen, and global liquidity will flow back into the United States from emerging countries,” he said. “Emerging currencies, including the Korean won, will fall in value. This means the U.S. recovery can lead to uncertainties in the financial sector.”
Prof. Shin Se-don at Sookmyung Women’s University said the U.S. recovery was somewhat exaggerated.
“It is true that the U.S. economy has regained overall confidence,” he said. “Falling oil prices have left people with more money to spend. It is an especially positive sign for low-income households.”
But he said there was another side to the situation.
“Although oil prices could be good news for the short term, the United States has invested a lot in shale gas,” he said. “The falling prices won’t be positive news from the mid-to-long term perspective.”
He especially warned about the weak yen, which hurts Korean exporters competing with Japanese companies.
“The Shinzo Abe administration took office two years ago, and introduced a weak yen policy,” he said. “Past data show that it takes two years (for Korea) to see the negative effect of a weak yen. Korea’s exports will likely see a contraction from early next year.”