Global projects for Korean exporters

By Semoon Chang

The Korean economy heavily depends on exports to other countries. Successful exports, in turn, depend significantly on how well the importing countries are doing, which is measured by the growth rate of their real gross domestic product. High growth rates of a country mean that the country’s consumers are doing well and buy more foreign goods. Low growth rates of a country will slow down imports. Growth rates of other countries clearly are an important consideration to many Korean exporters. Today, I will let you know the projected economic trends of selected countries,

The CESifo Group consists of the Center for Economic Studies (CES), the Ifo Institute and the Munich Society for the Promotion of Economic Research. The Ifo Institute at the University of Munich is one of the leading economic research institutes in Europe, and at the same time is the one most often quoted in the German media. The Ifo Institute conducts a quarterly survey of the world economy. I am lucky enough to have served on the Ifo survey panel for more than 10 years. Let me first introduce the overall trend of the world economy as indicated in the latest Ifo survey.

The Ifo Index for the world economy indicates that the world economic outlook improved during the first quarter of this year, with the projected growth rate of the world economy being 2.3 percent during 2015.

The Ifo report states that the economic climate improved significantly in Europe, and especially in Central and Eastern Europe, while the economic climate in Asia improved slightly. In the Middle East and Latin American countries, the economic indicator continues to decline, falling to its lowest level in almost six years. The economic climate is falling in North America, while it recovered somewhat but is well below the long-term average in the Commonwealth of Independent States (CIS). Members of the CIS states are Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Ukraine.

According to assessments by Ifo experts, “Economic growth in Europe (1.7 percent) and the U.S. (2.7 percent) will accelerate this year. The forecast growth rates for Latin America (1.3 percent) and Asia (3.6 percent), by contrast, are lower than last yearfigures. Experts expect Russia and Ukraine to be hit by a deep recession.” For details of Ifo surveys, readers may consult the Ifo World Economic Climate of May 2015.

In May of this year, the European Bank for Reconstruction and Development (EBRD) also released its economic assessment of European countries, which is less optimistic than the one contained in the Ifo survey. EBRD predicts, “Overall stagnation in 2015 across all 35 countries covered and meager expansion of just 1.4 percent in 2016.” There is a wide variation within the region, however, according to the EBRD.

In Central Europe and the Baltics (CEB), forecasts for Poland, Slovenia, the Slovak Republic and Hungary have been revised up, reflecting the stimulus from the quantitative easing by the European Central Bank and the weaker euro, which promotes exports. The EBRD agrees with Ifo assessment in that the recession of the Russian economy is worsening, negatively affecting CIS countries with which Russia has strong economic ties.

According to EBRD, the Russian economy is expected to shrink by 4.5 percent in 2015 and by another 2 percent in 2016. Ukraine is in a worse shape with 7.5 percent decline this year and another 5 percent decline in 2016. For details of EBRD forecasts, readers may consult the Regional Economic Prospects in EBRD Countries and Operations of May 2015.

The latest forecasts of the U.S. economy by the Federal Reserve Board are presented as a range of figures. The projected growth rates of real GDP are 2.3 to 2.7 percent for 2015 and 2016, and 2.0 to 2.4 percent for 2017. In other words, the growth of the U.S. economy is nothing to brag about and crawling along at the current rate in the foreseeable future. The rate of inflation, however, is projected to speed up a little. The projected rates of inflation are 0.6 to 0.8 percent for 2015, 1.7 to 1.9 percent for 2016, and 1.9 to 2.0 percent for 2017. For details of the U.S. forecasts, readers may consult the Economic Projections of Federal Reserve Board of March 2015, and the minutes of the May 20 Federal Open Market Operation meetings.

The state of the U.S. economy is aptly summarized by Chair Janet Yellen of the Federal Reserve Board in her May 22 speech at the Providence Chamber of Commerce in Rhode Island. Projections of the U.S. economy, “call for growth in real gross domestic product of roughly 2.5 percent per year over the next couple of years,” and Yellen expects “inflation to move up toward our objective of 2 percent as the economy strengthens further.” As to the interest rates, Yellen opines that, “Delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy,” and thus “it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy.”

Semoon Chang is the director of the Gulf Coast Center for Impact Studies.