Yoon Ja-young is in charge of articles translated by a generative AI system and edited by The Korea Times. She is interested in improving the newspaper through AI.
Korea faces triple whammy
Export goods are loaded on to Flight OZ987 on Friday, for Asiana Airlines’ first cargo flight of 2016. The plane left Incheon International Airport at 1:05 a.m., bound for Shanghai Pudong International Airport. The Korean economy is expected to continue to face a host of problems this year, including falling oil prices, U.S. rate hikes and a China slowdown. / Yonhap
By Yoon Ja-young
By Yoon Ja-young
The New Year’s sun has risen, but the outlook is not bright for the economy. Because Korea faces multiple overseas risks such as falling global oil prices, uncertainties following the U.S. key rate hike and China’s possible hard landing, economists are concerned that the nation may get trapped in low growth.
According to the Ministry of Trade, Industry, and Energy, the annual average prices of Dubai crude stood at $40.70 last year, a 47.5 percent fall from $96.60 in 2014.
The plunge hit not only the oil-producing countries but also Korea’s exports. Because oil products and petrochemical products -- which make up 17 percent of Korea’s exports -- also suffered price falls, and so the country’s total exports fell 7.9 percent in 2015 from the previous year.
With both exports and imports falling, Korea’s total trade stood at $964 billion last year, failing to achieve $1 trillion for the first time since 2011.
Market watchers are pessimistic about a rebound in oil prices.
“On top of the United States resuming exports of shale oil and crude oil and the OPEC countries’ increasing supply, falling imports in China will keep oil prices low,” said Hyundai Research Institute economist Ju Won.
The government expects Korea’s exports to increase 2.1 percent this year, but this is based on an estimation that oil prices will recover to $47.
With the economies of oil producers and other emerging economies ailing, Korea’s exports to these countries are also likely to be damaged.
The Chinese economy, on which the Korea heavily depends, is also facing a possible hard landing.
The International Monetary Fund (IMF) expects the world’s second-largest economy to grow 6.3 percent this year, the lowest in more than 25 years. This is in turn hitting the emerging economies that export raw materials to China. The economy of emerging countries grew a mere 3.9 percent last year, only half the growth of 2010.
The global financial market is also navigating amid great uncertainties following the U.S. key rate hike last month. Some fear the move could trigger a foreign exchange crisis in emerging economies through the exodus of capital.
These external risks are adding to the pessimistic outlook on the Korean economy, which is losing growth steam due to aging. Korea’s working age population will start to decrease from next year.
While the government has suggested a 3.1 percent economic growth target for 2016, many doubt if this is attainable.
Citigroup expects Korean economy to grow 2.4 percent this year, citing huge household debt and slowing demand from overseas.
Morgan Stanley suggested 2.2 percent lackluster growth due to a negative outlook on exports.
Domestic economic think tanks are also more pessimistic than the government. The LG Economic Research Institute suggested 2.5 percent growth, while the Korea Development Institute said the growth rate could fall to the mid-2 percent range if the global economy did not improve.
“Due to continued sluggish exports, the manufacturing sector has lost growth potential,” said LG Economic Research Institute economist Lee Geun-tae.
“If productivity doesn’t improve, the economic growth potential will remain in the mid-2 percent range for the next five years.”
“The government should focus on structural reform to improve the competence of the economy instead of trying to improve the growth rate by stimulus measures.”