By Yoon Ja-young
Consumer prices have risen by less than 1 percent for five consecutive months.
In addition, both exports and imports have decreased for four months in a row amid sluggish world trade.
As a result, economists call for a breakthrough to resuscitate the stalling economy.
According to Statistics Korea, Friday, consumer prices rose 0.4 percent in April year-on-year. When excluding the 0.58 percent rise triggered by the cigarette tax hike, the country has been experiencing deflation for three consecutive months.
Kim Bo-Kyung, the head of the agency's prices statistics division, explained that the fall in oil and energy prices was behind the low inflation.
Oil prices have fallen by 20.9 percent as of April year-on-year, pulling down overall inflation by 1.1 percentage points. Liquefied natural gas provided to urban areas also fell by 14 percent.
“While service prices, including rents, have been rising steadily, these falling factors pulled down inflation to below 1 percent,” she said.
Kim added that the fall in processed goods prices due to bargain sales at department stores is also reflected in the statistics.
“Though the inflation is low at below 1 percent, core inflation is still above 2 percent. Deflation is less probable,” said Lee Jun-hyup, a researcher at Hyundai Research Institute.
“Even so, concern is increasing over deflation where a sluggish economy and falling prices form a vicious circle. It is most important to improve economic sentiment,” he added.
Exports, which had been sustaining the economy, are also decreasing.
The Ministry of Trade, Industry and Energy announced Friday that exports totaled $46.2 billion in April, down 8.1 percent.
They have been decreasing for four months in a row.
The ministry explained that the nurturing of domestic manufacturers in the United States, and China’s shift in focus to its domestic market are decreasing global trade amid a slowdown of the world economy
Imports totaled $37.7 billion, down 17.8 percent from a year ago ― they have fallen for seven consecutive months.
While the country’s trade account marked an $8.5 billion surplus, the biggest monthly surplus ever, it isn’t good news as it only reflects trade losing steam.
Kang Joong-koo, an economist at LG Economic Research Institute, said the recent fall in exports may be a structural phenomenon.
“Korea’s main export market China is changing its growth strategy, shifting its focus to the domestic market from exports,” he said.
This means it will increase imports of consumer goods. However, Korea’s exports to China have been mostly capital goods,” he added.
The economist said exports to oil producing countries will also slow for a time as low global oil prices will continue. “While the oil production capacity has expanded, the increase in demand is slow. There is a consensus that low oil prices are not a temporary phenomenon.”
Due to the fall in natural resource prices and the sluggish domestic economy, imports won’t increase, either. This means there will be huge current account surplus, which will pressure the Korean won to further strengthen. “Exports will be too weak to lead the economy this year,” Kang said.
So Jae-yong, an economist at Hana Daetoo Securities, said Korea should learn from Germany so as not to follow in the footsteps of Japan, which has been suffering from two lost decades.
“Germany maintained price competitiveness by depreciating the German mark and introducing the euro, while securing a stable market in the euro zone. The government also managed the labor, through reunification (with East Germany) and immigration policies. This helped Germany maintain global leadership in diverse industries,” he said.
Japan, meanwhile, lost competitiveness by appreciating the yen after the Plaza Agreement, and couldn’t fully advance into China due to political conflict. It also failed to deal with the aging of the population. He said this resulted in a hollowing out of the manufacturing sector.