By Kim Tong-hyung
The swooning stock market, faltering exports and subduing economic activity suggest that a ``perfect storm’’ has come ashore and all possible preparations must be made. With Europe’s financial crisis careening toward a catastrophic climax, there is an obvious sense of urgency among policymakers and companies here as they fear that if the eurozone implodes, Korea’s export-dependent economy will go with it.
After enduring what vernacular media outlets dubbed as ``black Monday,’’ the Korea Composite Stock Price Index (KOSPI) clawed back above the sentimental 1,800-point line Tuesday, inching up 1 percent from the previous close to finish at 1,801.85, thanks to a flurry of bids by institutional investors.
However, the foreign capital flight continued as offshore investors pulled out of the market for the fourth straight session, dumping 342.9 billion won (about $291 million) worth of shares after shedding their holdings by 264 billion won on Monday, indicating the erosion of confidence in the Korean economy.
During sunny times for world markets, Korea and its trade-dependent economy will be hailed as a model for developing nations and a shining beacon of globalization. But then things will get worse and turn Korea into a whipping boy of analysts and academics, suddenly aware they are looking at a one-trick export pony.
And it was already a dismal year for the Korean economy when the eurozone debt crisis took a turn for the worse and decimated stock markets.
Policymakers admit to fears that the sharp pullback in trade surplus in recent months could merely prove as a preview of a dramatic skid as the triple fears of a toxic Europe, a stuttering U.S. recovery and softening Chinese economy could be too much to overcome. And the outlook for major developing markets Brazil and India is becoming murkier as well.
A significant hit to exports could derail the country’s fragile recovery as consumers are unready to pick up the slack when family finances are in a worse state than last year’s milk.
Large corporations, which provide the heart of the country’s export machine, are scrambling to prepare for the worst. But it appears that for some industries like shipbuilding, steel and chemicals, the worst has already arrived.
Official figures show that the outbound shipments of Korea’s export items such as ships, mobile phones, semiconductors, liquid crystal displays (LCDs), consumer electronics and chemicals, were down visibly from last year’s levels for the first five months of the year.
The exports of these items to Europe, the United States and China, which are Korea’s three-largest trade markets, declined by double-digit percentages during the period, according to data from the Ministry of Knowledge Economy. Shipbuilders in particular saw their orders decline by more than 40 percent year-on-year in the three months to March, and it seems that the market will get worse before it gets better.
While Korea’s mighty companies in technology and automotive industries have so far fared better than other players in the industrial sector, falling global demand for televisions, mobile phones and cars are beginning to eat into their income.
Technology giants like Samsung and LG have posted respectable earnings this year on rising sales of finished products such as smartphones and televisions, but they are struggling to cope with weakness in their parts businesses ― LCDs and memory chips.
Hyundai-Kia, the country’s largest automaker, is concerned about declining European sales, predicting that the demand for vehicles in France and Italy could shrink by more than 20 percent.
``While we have yet to experience a direct impact from the eurozone troubles, we are obviously keeping a close watch on the developments,’’ said an official from Samsung Electronics, the undisputed kingpin of Korea Inc. and the world’s leading maker of televisions, mobile phones and computer memory chips. Sales from Europe account for around 20 percent of Samsung’s total revenue.
LG Electronics, Samsung’s domestic rival, has admitted it’s scrambling to strengthen its activities in developing markets as it’s highly unlikely it will achieve growth in its eurozone revenue this year. Hyundai Steel, the country’s second-largest steelmaker behind POSCO, says it has converted to a cost-cutting mode and focusing more on strengthening its positions in markets like Japan and South America.
An official from Hyundai-Kia was blunt, saying there is nothing the company can really do about the drama in Europe and the massive threat posed by the precarious Greece and Spain.
``It’s not to say that we won’t be affected (by the crisis). We have some related departments analyzing the situation,’’ he said.
Korea’s external troubles have been coupled with softened consumer spending domestically, underlining worries the subduing economic activity will prove to be worse than feared.
Korea’s historically-high household debt, at nearly one quadrillion won, matches an entire year’s GDP, while an alarmingly large portion of working-age Koreans remain sidelined from the labor market.