By Choi Sung-jin
What's good for U.S. economy may prove to be not so good for the rest of the world, especially for the emerging economies. And Korea will likely be hit hardest by the consequent economic setback worldwide, local analysts said.
The U.S. economy apparently seems to be on a roll. According to October job figures announced by the Department of Labor, 270,000 jobs were added to payrolls in last month alone, pulling down unemployment rate to 5.0 percent, the lowest since April 2008. The favorable employment situation will lighten the burden for Fed to raise interest rate next month, the analysts said.
Situations facing other major economies are quite the opposite. China's growth rate in the third quarter stood at 6.9 percent, falling below 7 percent for the first time in six years. Japan even saw its growth rate turn toward the negative territory as its economy contracted by 0.3 percent in the second quarter.
Sandwiched between the upcoming U.S. interest rate hike and prolonged slump in other major economies are emerging economies. Especially countries that export raw materials, including iron ore and crude oil, are reeling from sharp decrease in demand and the steep fall in their currency values. "Given the recent sharp drops of currencies ranging from Brazilian real to Malaysian ringgit, these countries can be seen as experiencing currency crisis," Chung Eui-min, an analyst at Mirae Asset Securities, told the Yonhap News Agency.
Few other countries can feel the adverse effects of these problems more acutely than Korea.
The biggest reason for Korea's trouble is its undue dependency of export on China, which has reached 25 percent of total outbound shipment. Moody's, in its economic forecast for 2015-2017, noted that Korea relies for half its GDP on Chin and other emerging markets, and if China's economic growth decelerates, Korea's economic growth rate would not exceed 2.5 percent, either.
"Korea's exports to emerging markets have grown 10 percent on annualized average over the past five years, and if its shipments decline by 5 percent a year, that would effectively pull down the country's growth rate by 0.4 percentage point," the global rating agency said.
The U.S. interest rate hike might also result in massive outflow of capital, hitting hard the domestic stock market. According to the Bank of Korea, more than 20 trillion won ($17.5 billion) left Korea between 2004 and 2006 when the U.S. central bank raised interest rates. Each time the Fed jacked up money rate in 194, 1999 and 2004, Korea's stock prices fell by 10-20 percent, steeper than comparable drops of 8-14 percent in emerging economies.
Others are more sanguine about the effect of the U.S. interest raise. "We do not expect the Fed would raise interest rate as steeply as in the past," said an official at the Financial Supervisory Board. "It is true that the currency values of some raw material exporters have reached dangerous levels but they will not fall into crisis like that in 1977 as most of these countries have introduced floating exchange rates and accumulated sufficient foreign reserves."
What's good for U.S. economy may prove to be not so good for the rest of the world, especially for the emerging economies. And Korea will likely be hit hardest by the consequent economic setback worldwide, local analysts said.
The U.S. economy apparently seems to be on a roll. According to October job figures announced by the Department of Labor, 270,000 jobs were added to payrolls in last month alone, pulling down unemployment rate to 5.0 percent, the lowest since April 2008. The favorable employment situation will lighten the burden for Fed to raise interest rate next month, the analysts said.
Situations facing other major economies are quite the opposite. China's growth rate in the third quarter stood at 6.9 percent, falling below 7 percent for the first time in six years. Japan even saw its growth rate turn toward the negative territory as its economy contracted by 0.3 percent in the second quarter.
Sandwiched between the upcoming U.S. interest rate hike and prolonged slump in other major economies are emerging economies. Especially countries that export raw materials, including iron ore and crude oil, are reeling from sharp decrease in demand and the steep fall in their currency values. "Given the recent sharp drops of currencies ranging from Brazilian real to Malaysian ringgit, these countries can be seen as experiencing currency crisis," Chung Eui-min, an analyst at Mirae Asset Securities, told the Yonhap News Agency.
Few other countries can feel the adverse effects of these problems more acutely than Korea.
The biggest reason for Korea's trouble is its undue dependency of export on China, which has reached 25 percent of total outbound shipment. Moody's, in its economic forecast for 2015-2017, noted that Korea relies for half its GDP on Chin and other emerging markets, and if China's economic growth decelerates, Korea's economic growth rate would not exceed 2.5 percent, either.
"Korea's exports to emerging markets have grown 10 percent on annualized average over the past five years, and if its shipments decline by 5 percent a year, that would effectively pull down the country's growth rate by 0.4 percentage point," the global rating agency said.
The U.S. interest rate hike might also result in massive outflow of capital, hitting hard the domestic stock market. According to the Bank of Korea, more than 20 trillion won ($17.5 billion) left Korea between 2004 and 2006 when the U.S. central bank raised interest rates. Each time the Fed jacked up money rate in 194, 1999 and 2004, Korea's stock prices fell by 10-20 percent, steeper than comparable drops of 8-14 percent in emerging economies.
Others are more sanguine about the effect of the U.S. interest raise. "We do not expect the Fed would raise interest rate as steeply as in the past," said an official at the Financial Supervisory Board. "It is true that the currency values of some raw material exporters have reached dangerous levels but they will not fall into crisis like that in 1977 as most of these countries have introduced floating exchange rates and accumulated sufficient foreign reserves."
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