GDP to Fall by 2% Points if Oil Price Hits $200

By Park Hyong-ki

Staff Reporter

The country's economic growth rate is expected to fall by more than 2 percentage points if soaring oil prices hit $200 per barrel.

The Hyundai Research Institute (HRI) said that if oil prices average $130 per barrel this year, the gross domestic product (GDP) growth rate will drop by 1 percentage point from last year's 5 percent, with consumer prices rising by 3.2 percentage points on average.

If it surpasses the $200 mark, Korea's GDP will fall by more than 2 percentage points, it forecast.

Oil prices so far this year have averaged $103.3 per barrel. Accordingly, the research institute forecast the country's growth rate to reach 4.46 percent this year, down 0.54 percentage points from last year, when only considering inflation.

Recently, global oil prices topped $130 a barrel, and investment banks such as Goldman Sachs forecast oil prices will hit $150-$200 in two years. Meanwhile, the won at one point fell to 1,050 won against the U.S. dollar. The currency is now trading at the 1,010-won level.

``Rising oil prices will bring about sluggish consumption and corporate investment, ultimately clouding its economic growth,'' the institute anticipated.

It recommended the government and corporations boost their independence from oil by developing alternative energy sources, utilizing nuclear power and nurturing sectors such as information and technology that do not require heavy-loaded oil tanks to do business.

The HRI advised the government not to back a weak won policy, otherwise, Korea will enter a time of economic hardship.

Although a weak won will boost the competitiveness of Korean products abroad, it will increase the import price of oil. Given that the country is not independent of oil, it could see a rising current account deficit on high import prices of oil.

``The weakening won is raising the price of oil imports further, and increasing inflationary pressure. To reduce such risk, the government should hold back on the weak won policy,'' the institute said.

phk@koreatimes.co.kr