Depressed economy stirs talk of stagflation
By Kim Tong-hyung
Korea’s industrial output posted its first annual decline in 31 months in January, official figures showed Wednesday, adding to a slew of bad data for the economy that also include deteriorating exports and collapsed consumer spending.
The subdued economic activity has been coupled with fears that inflation will be hitting a new peak in the coming months on rising household bills for food and fuel, prompting pessimists to wonder whether the specter of stagflation is reappearing.
The latest Statistics Korea report followed an announcement by the Bank of Korea (BOK) a day earlier that the country posted a $770 million current account deficit last month, dipping into the red for the first time in two years, reflecting worsening global conditions.
Exports declined 7 percent year-on-year to $41.4 billion in January, with the shipments to crisis-hit Europe dropping by nearly 38 percent. Consumption annually rose 0.3 percent last month, but declined 0.8 percent from December, influenced by the rising costs for food, oil and utilities.
A meeting between economy-related ministries and the central bank Wednesday produced a damning forecast that the country’s growth in exports will come in at around 5 percent through February, a sharp pullback from the 19.3 percent gain for 2011, as the eurozone debt crisis begins to take a stronger hold.
In a separate meeting on anti-inflation policies, Strategy and Finance Minister Bahk Jae-wan predicted manufacturing and production would rebound this month and next. However, he admitted that the possibilities of fuel and food costs pumping up inflation were a critical concern considering the erosion in family finances, and said that lowering fuel taxes could be considered if the situation becomes desperate.
“Lowering taxes and restricting the use of passenger cars, by taking turns in license plate numbers, could be considered among the contingency measures when international oil prices hover over $130 per barrel for five straight days,” Bahk said.
The cost of Dubai crude, Korea’s benchmark, reached $121.81 per barrel at the close of Tuesday’s trading, raising concerns in a country that depends on imports to support its energy needs.
“We do believe that exports in February will manage a double-digit annual gain and rebound from the January deficit. You have to consider that the Lunar New Year holidays came in at January this year, so it would be better to consider January and February as a single period in terms of continuity. There’s nothing yet to be happy about, but there’s also nothing to fret about either,” Bahk said.
The 2-percent annual decline in mining and manufacturing output represented the first contraction since June 2009. However, the output did represent a 3.3 percent growth from December.
The country’s service sector output expanded a mid 0.9 percent year-on-year last month, with the average operating rate of manufacturers standing at 80.6 percent, a gain of 3.6 percentage points from the previous month.