The export-driven Korean economy is feared to face a rockier road ahead due to dwindling overseas demand and deteriorating terms of foreign trade. The nation's exports contracted 28.5 percent last month from a year earlier on a customs clearance basis. It is worrisome to see exports go on a downward march for seven months in a row since last November.
It is no surprise that the unprecedented global economic crisis has depressed consumption and made a dent in demand for Korean-made goods on overseas markets. The country has taken the brunt of the hard times because of its heavy reliance on exports for economic growth. The nation's exports accounted for 46 percent of gross domestic product (GDP) in 2008.
What's gloomier is that it is hard to anticipate a reversal of the export decline trend anytime soon. Trade conditions are expected to get worse in the second half of the year. These darker prospects for exports could inevitably lead to a delay in the nation's efforts to speed up an economic recovery through massive stimulus packages.
The government has vowed to overcome difficulties by stoking domestic demand and thereby reducing the nation's excessive reliance on exports. But it is easier said than done. It is a really challenging task to boost local demand to offset export declines because consumers are still not ready to increase their spending amid a recession. Job cuts and wage reductions are also freezing consumer sentiment.
In addition, protectionism has been gaining ground despite world leaders' repeated commitment to free trade. Korean companies are under increasing pressure to lower their product prices in a fierce competition with their rivals on the global markets. Therefore, they cannot avoid the deterioration of their profitability.
Against this backdrop, local exporters should make strenuous efforts to improve their international competitiveness by making quality products at lower prices. They also have to strengthen their marketing activities and explore new markets around the globe. For this, they must not neglect management reform and technological innovation.
Economic policymakers are required to create a more favorable business environment to help companies sharpen their competitive edge. They also need to go all-out to improve the terms of trade so that exporters can increase their shipments. Financial authorities especially should endeavor to stabilize the exchange of the local currency against the U.S. dollar.
The weak won helped the country expand its exports early this year as the Korean unit once tumbled to 1,500 won per dollar. But it is now trading at between 1,250 won and 1,270 won against the greenback. Some research centers predict that the local currency might gain further to 1,150 won per dollar in the latter half of the year.
The nation's growth recovery will depend on revitalizing exports as well as fueling domestic demand. What's urgent is to adopt a new economic paradigm to get out of the ongoing crisis and find new growth engines.