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S. Korea Faces Triple Whammy
World Economy

S. Korea Faces Triple Whammy

The New Year’s sun has risen, but the outlook is not bright for the South Korean economy. Because Korea faces multiple overseas risks such as falling global oil prices, uncertainties following the US key rate hike and China’s possible hard landing, economists are concerned that the nation may get trapped in low growth.
According to the ministry of trade, industry, and energy, the annual average prices of Dubai crude stood at $40.70 last year, a 47.5% fall from $96.60 in 2014, Yonhap reported.
The plunge hit not only the oil-producing countries but also South Korea’s exports. Because oil products and petrochemical products–which make up 17% of Korea’s exports–also suffered price falls, and so the country’s total exports fell 7.9% in 2015 from the previous year.
With both exports and imports falling, South Korea’s total trade stood at $964 billion last year, failing to achieve $1 trillion for the first time since 2011.
Market watchers are pessimistic about a rebound in oil prices.
“On top of the United States resuming exports of shale oil and crude oil and the OPEC countries’ increasing supply, falling imports in China will keep oil prices low,” said Hyundai Research Institute economist Ju Won.
The government expects South Korea’s exports to increase 2.1% this year, but this is based on an estimation that oil prices will recover to $47. With the economies of oil producers and other emerging economies ailing, South Korea’s exports to these countries are also likely to be damaged.
The Chinese economy, on which Korea heavily depends, is also facing a possible hard landing.
The International Monetary Fund expects the world’s second-largest economy to grow 6.3% this year, the lowest in more than 25 years. This is in turn hitting the emerging economies that export raw materials to China. The economy of emerging countries grew a mere 3.9% last year, only half the growth of 2010.
The global financial market is also navigating amid great uncertainties following the US key rate hike last month. Some fear the move could trigger a foreign exchange crisis in emerging economies through the exodus of capital. These external risks are adding to the pessimistic outlook on the South Korean economy, which is losing growth steam due to aging. The country’s working age population will start to decrease from next year.
While the government has suggested a 3.1% economic growth target for 2016, many doubt if this is attainable.
Citigroup expects South Korean economy to grow 2.4% this year, citing huge household debt and slowing demand from overseas.
Morgan Stanley suggested 2.2% lackluster growth due to a negative outlook on exports.
Domestic economic think tanks are also more pessimistic than the government. The LG Economic Research Institute suggested 2.5% growth, while the Korea Development Institute said the growth rate could fall to the mid-2% range if the global economy did not improve.
“Due to continued sluggish exports, the manufacturing sector has lost growth potential,” said LG Economic Research Institute economist Lee Geun-tae.

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