Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Gov't on alert over economic impact of Ukraine-Russia conflict
First Vice Finance Minister Lee Eog-weon speaks during a meeting of the ministry's taskforce concerning the Ukraine-Russia crisis at the Government Complex in Seoul, Wednesday. The Ministry of Trade, Industry and Energy also hosted a separate meeting presided over by Vice Trade Minister Park Jin-kyu, Wednesday, to discuss ways to cope with the crisis. Yonhap
By Yi Whan-woo
Surging energy prices, 'agflation' could dent Asia's 4th-largest economy in event of full-scale war
By Yi Whan-woo
The government is on alert over the mounting tensions between Ukraine and Russia, amid speculation that the conflict could send shockwaves through the Korean economy if it spreads to a full-scale war or drags on indefinitely.
The general consensus in Korea is that the Ukraine-Russia crisis will not hit the country's economy directly, considering the two make up a small portion of its overall exports. According to trade data, Russia accounts for 1.5 percent and Ukraine 0.1 percent of Korea's exports.
The conflict is still feared for its potential compounding impacts on the world's economy, as witnessed from surging oil prices nearing $100 a barrel and potential agflation ― a rise in agricultural food product prices.
This butterfly effect could eventually hit Asia's fourth-largest economy in terms of trade and inflation, among others.
In separate meetings on Wednesday headed by their respective vice ministers, the Ministry of Economy and Finance and the Ministry of Trade, Industry and Energy said they are closely monitoring the developing situation in Ukraine. The meetings followed ones on Tuesday presided over by the finance minister and central bank governor, respectively, on the Ukraine crisis.
“There have not been specific trends or signs that can affect key sectors of our economy,” First Vice Finance Minister Lee Eog-weon said during a meeting of the ministry's taskforce at the Government Complex in Seoul concerning the crisis.
He noted the exports on the first 20 days of February rose by 13.1 percent year-on-year, and the won-dollar exchange rate is on “a fairly stable trend.” The exchange rate hovered around 1,193 won from Tuesday to Wednesday, after climbing to the 1,200 percent range in late January and early February. The main bourse KOSPI closed at 2,719.53, Wednesday, up 0.47 percent from the previous day.
“Regardless, it is difficult to predict repercussions on our economy if there are large-scale military offensives or tough sanctions in the near future.”
Lee accordingly said the government will run a joint taskforce meeting involving all relevant ministries every day, “to thoroughly check the situation on energy, supply chains, finance, the real economy and every possible sector and take corresponding measures if necessary.”
During a meeting at the Korea Chamber of Commerce and Industry (KCCI), First Industry Vice Minister Park Jin-kyu explained the energy supply is “well secured” in the short term, while promising to diversify the supply routes for crude oil, coal and natural gas in the event of disruption.
“The ministry, in coordination with the pan-government taskforce, will make utmost efforts to resolve problems swiftly and take supportive measures on the Ukraine crisis,” Park said.
U.S. President Joe Biden addresses the escalation on the Ukraine-Russian border during a speech in the East Room of the White House in Washington, D.C., Tuesday. EPA-Yonhap
The vice-ministerial meetings came several hours after U.S. President Joe Biden announced the first round of sanctions on Russia, in response to Russian President Vladimir Putin's order deploying troops into eastern Ukraine as part of “peacekeeping duties.”
In their analytical reports, several brokerage houses were on the same page with the government that deepening Ukraine-Russia tensions will have limited impact on the financial market because the associated risks have already been taken into account.
However, the situation can change in the event of a full-scale war and also whether the conflict ends quickly or lasts a long time.
Hi Investment & Securities pointed out that Ukraine has been a major global wheat exporter and that the conflict with Russia, together with climate change, “can stir up concerns over agricultural food product prices and result in agflation.”
Samsung Securities said the Ukraine-Russia crisis is somewhere between “regional and global” when it comes to its economic impact on the outside world.
“And the key variables will be the prices of energy and agricultural products,” it noted.
Kim Bong-man, head of the International Affairs Division at the Federation of Korean Industries (FKI), speculated that the conflict can add to the worsening trade balance.
He highlighted that, while Ukraine is ranked 68th among Korea's bilateral trade partners, it accounts for more than one-third of Korea's imports of krypton gas, a key chemical element for making semiconductors.
“The disrupted imports can therefore add to the worsening trade balance if the crisis gets complicated,” Kim said, pointing to Korea's two straight months of trade deficit last December and in January.