By Yoon Ja-young
The won's strength against major currencies is adding to the woes of already struggling exporters and dimming the hopes of economic recovery in the second half of the year, analysts said Thursday.
The restructuring of the Chinese economy and diminishing world trade are also weighing on exports, the last sustaining pillar of the economy.
According to data from the Bank of International Settlement (BIS), the "real effective exchange rate" index for the won was 115.34 points as of April, which is the highest since February 2008.
The real effective exchange rate measures the value of a currency against a basket of other currencies, taking into account inflation and trade.
A reading above 100 means the currency is highly evaluated compared with 2010, while a figure below 100 implies low evaluation.
The relative value of the won strengthened due to the Japanese yen and Chinese yuan. The yen gained only 0.7 percent in value against the dollar last month, which compares with a 2.2 percent gain by the won. The Korean currency also gained 1.5 percent against the yuan.
Korean exporters are thus losing competitive edge in terms of prices. The sales of 501 manufacturers listed on the stock market totaled 433 trillion won in the first quarter, down 5.8 percent from a year ago.
Lee Geun-tae, an economist at LG Economic Research Institute, said the slowdown of world trade is hurting exporting countries.
"The global trade increased by an annual 12.5 percent between 2000 and 2008, but it marked only 1.2 percent growth on average during the past three years. As the growth pattern of the global economy shifts to a domestic and service focus from manufacturing and export, the countries that had been growing through export are suffering," he said.
He pointed out that the ratio of electronics and automobiles in global trade fell even further. Electronics took over 20 percent of the global trade between 2000 and 2007, but the ratio fell to 17 percent during the past three years. The ratio of automobiles in global trade also fell by around 2 percentage points.
"Though the global economy has recovered from the financial crisis, the demand on durable goods hasn't recovered as much. Consumers in the developed economies are decreasing consumption of durable goods on concern that the recession will linger on," he said.
He added that the Chinese companies are also eating into the market share of Korean players, as they began reaping fruits of their massive investment in steel and petrochemical industries in 2000s. They are also threatening Korean products in sectors such as displays and smartphones, thanks to advances in technology.
He warned that the economy might lose its momentum if the harsh condition for exporters and loss of competitive edge continue.
He advised that the government should focus on structural reforms on the labor market while refraining from taking short-term populist measures or trying to boost the real estate.
The won's strength against major currencies is adding to the woes of already struggling exporters and dimming the hopes of economic recovery in the second half of the year, analysts said Thursday.
The restructuring of the Chinese economy and diminishing world trade are also weighing on exports, the last sustaining pillar of the economy.
According to data from the Bank of International Settlement (BIS), the "real effective exchange rate" index for the won was 115.34 points as of April, which is the highest since February 2008.
The real effective exchange rate measures the value of a currency against a basket of other currencies, taking into account inflation and trade.
A reading above 100 means the currency is highly evaluated compared with 2010, while a figure below 100 implies low evaluation.
The relative value of the won strengthened due to the Japanese yen and Chinese yuan. The yen gained only 0.7 percent in value against the dollar last month, which compares with a 2.2 percent gain by the won. The Korean currency also gained 1.5 percent against the yuan.
Korean exporters are thus losing competitive edge in terms of prices. The sales of 501 manufacturers listed on the stock market totaled 433 trillion won in the first quarter, down 5.8 percent from a year ago.
Lee Geun-tae, an economist at LG Economic Research Institute, said the slowdown of world trade is hurting exporting countries.
"The global trade increased by an annual 12.5 percent between 2000 and 2008, but it marked only 1.2 percent growth on average during the past three years. As the growth pattern of the global economy shifts to a domestic and service focus from manufacturing and export, the countries that had been growing through export are suffering," he said.
He pointed out that the ratio of electronics and automobiles in global trade fell even further. Electronics took over 20 percent of the global trade between 2000 and 2007, but the ratio fell to 17 percent during the past three years. The ratio of automobiles in global trade also fell by around 2 percentage points.
"Though the global economy has recovered from the financial crisis, the demand on durable goods hasn't recovered as much. Consumers in the developed economies are decreasing consumption of durable goods on concern that the recession will linger on," he said.
He added that the Chinese companies are also eating into the market share of Korean players, as they began reaping fruits of their massive investment in steel and petrochemical industries in 2000s. They are also threatening Korean products in sectors such as displays and smartphones, thanks to advances in technology.
He warned that the economy might lose its momentum if the harsh condition for exporters and loss of competitive edge continue.
He advised that the government should focus on structural reforms on the labor market while refraining from taking short-term populist measures or trying to boost the real estate.
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