Consumer Spending Likely to Contract
By Jane Han
Staff Reporter
Ordinary consumers have very little direct exposure to collapsed Lehman Brothers, so why should they care that it went bust?
The answer is simple, says Huh Chan-kook, a senior economist at the Korea Economic Research Institute, ``the global financial system is a spider web, so one fallout will lead to a trickle effect across the world.''
In the short run, small investors will see their stocks tumble from the Lehman news, but what's worse is its threat to the wider domestic economy, he said.
Experts say that a decline in exports will be one of the mid- to long-term effects of the U.S. financial meltdown, as the extended credit crisis will squeeze American consumers even more.
U.S. consumer sentiment had improved slightly in July and August, but it is still about half that of last year, according to the latest figures. Economists forecast that the latest turbulence could take a big bite out of consumer confidence.
This means export-dependent South Korea will be selling less cars, handsets and televisions in the country's second-largest export destination.
Noh Sung-ho, a trade expert at the Korea International Trade Association, said dampened U.S. exports will subsequently cause shipments to China, Japan and other Asian countries to slump.
``Fewer exports leads to less production, which means fewer jobs here,'' explained Noh, who added that a fall in overseas sales will also worsen the country's already serious current account deficit.
Asia's third-largest economy posted the largest current account deficit in six months in July, which put further pressure on the won.
The local currency, however, was already suffering Tuesday. The won, Asia's worst performing currency this year, tumbled steeply against the U.S. dollar on the deepening Wall Street woes.
``The weak won will boost inflation yet again,'' said Park Sang-hyun, chief economist at CJ Investment & Securities. ``And guess who is the biggest victim? Consumers.''
Consumer prices rose 5.6 percent in August from a year earlier, while the average household debt was 40 million won ($36,000), a three-fold jump from a decade ago.
``Conditions have been bad, but things turned for the worse just when we thought things were going to get better,'' said Huh, referring to falling oil prices and a stabilizing stock market as recent positive signs.