Time to take measures for sustainable growth
Korea registered a record trade deficit last month, driven by soaring prices of oil and raw materials amid global supply chain bottlenecks. According to the Ministry of Trade, Industry and Energy, the trade shortfall reached $4.89 billion last month, which is the largest monthly deficit since 1966 when the country began to compile trade statistics.
The January figure represented a sharp increase from a $452 million deficit in December, when the nation's trade balance went into the red after registering a surplus for 19 straight months. What is worrying is that this was the first time since the global financial crisis in 2008 that Korea suffered two consecutive months of deficit.
The ministry explained that imports of three major energy sources ― crude oil, gas and coal ― rose drastically by $9.06 billion, or 131 percent, to $15.95 billion in January from the previous month. It attributed the record deficit to "temporary seasonal factors such as rapidly rising energy prices coupled with high demand in winter." But the ministry is taking flak for failing to take detailed measures to prevent the trade deficit from widening.
For starters, energy prices are highly likely to continue rising in the foreseeable future after soaring more than 50 percent from a year earlier affected by short supply and geopolitical risks gripping Eastern Europe and the Middle East. Morgan Stanley projected oil prices to continue to increase more than 10 percent by summer.
Due to haunting concerns over Russia's possible invasion of Ukraine, the price of natural gas spiked 30 percent last month. The U.S. move toward monetary tightening is prompting the Korean won to lose its value against the U.S. dollar, leading to the trade deficit in Asia's fourth-largest economy.
The nation is also facing an unfavorable export environment. The U.S. and Chinese economies, which account for 40 percent of Korea's total overseas shipments, have shown signs of slowing. The International Monetary Fund recently lowered the estimated U.S. economic growth forecast for this year from 5.2 percent to 4 percent and China's growth outlook to 4.8 percent from 5.6 percent.
Korea's exports rose 15.2 percent year-on-year in January, down from 18.3 percent in December and 31.9 percent in November. The ministry downplayed the slowing export growth, describing it as "temporary." But critics argue that the slowdown in shipments will continue for the time being. As the Korean economy heavily depends on trade, the trade shortfall, if prolonged, will lead to an upsurge in external liabilities.
It is high time for Seoul to take proper measures to prevent the trade deficit from widening further. To reduce imports of energy sources for power generation, the Moon Jae-in administration should consider abandoning its nuclear energy phaseout policy. The government and businesses should jointly double down on strengthening the international competitiveness of domestic enterprises and exploring new export markets around the world.
Korea registered a record trade deficit last month, driven by soaring prices of oil and raw materials amid global supply chain bottlenecks. According to the Ministry of Trade, Industry and Energy, the trade shortfall reached $4.89 billion last month, which is the largest monthly deficit since 1966 when the country began to compile trade statistics.
The January figure represented a sharp increase from a $452 million deficit in December, when the nation's trade balance went into the red after registering a surplus for 19 straight months. What is worrying is that this was the first time since the global financial crisis in 2008 that Korea suffered two consecutive months of deficit.
The ministry explained that imports of three major energy sources ― crude oil, gas and coal ― rose drastically by $9.06 billion, or 131 percent, to $15.95 billion in January from the previous month. It attributed the record deficit to "temporary seasonal factors such as rapidly rising energy prices coupled with high demand in winter." But the ministry is taking flak for failing to take detailed measures to prevent the trade deficit from widening.
For starters, energy prices are highly likely to continue rising in the foreseeable future after soaring more than 50 percent from a year earlier affected by short supply and geopolitical risks gripping Eastern Europe and the Middle East. Morgan Stanley projected oil prices to continue to increase more than 10 percent by summer.
Due to haunting concerns over Russia's possible invasion of Ukraine, the price of natural gas spiked 30 percent last month. The U.S. move toward monetary tightening is prompting the Korean won to lose its value against the U.S. dollar, leading to the trade deficit in Asia's fourth-largest economy.
The nation is also facing an unfavorable export environment. The U.S. and Chinese economies, which account for 40 percent of Korea's total overseas shipments, have shown signs of slowing. The International Monetary Fund recently lowered the estimated U.S. economic growth forecast for this year from 5.2 percent to 4 percent and China's growth outlook to 4.8 percent from 5.6 percent.
Korea's exports rose 15.2 percent year-on-year in January, down from 18.3 percent in December and 31.9 percent in November. The ministry downplayed the slowing export growth, describing it as "temporary." But critics argue that the slowdown in shipments will continue for the time being. As the Korean economy heavily depends on trade, the trade shortfall, if prolonged, will lead to an upsurge in external liabilities.
It is high time for Seoul to take proper measures to prevent the trade deficit from widening further. To reduce imports of energy sources for power generation, the Moon Jae-in administration should consider abandoning its nuclear energy phaseout policy. The government and businesses should jointly double down on strengthening the international competitiveness of domestic enterprises and exploring new export markets around the world.
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