Global financial woes may undermine Korea’s industrial growth and private consumption


The growing global financial woes in the wake of the European debt crisis and the downgrade of the U.S. sovereign rating may deal a blow to Korea’s economy, amplifying the uncertainties and fluctuations of the nation’s stock markets, analysts said.

Despite financial regulators’ efforts to ease the jitters of foreign investors, predictions in the markets are that the fiscal difficulties in Europe and the U.S. will ultimately undermine Korea’s industrial growth and private consumption.

Their view reflects the reality that the U.S. and the EU have been two of the major trading partners for Korea.

Though the government has diversified its export targets over the past several years, the U.S. and the EU still account for 9.4 and 10.1 percent of Korea’s total export destinations this year.

LG Economic Research Institute has stated the possibility that Korea will suffer slackened exports in major sectors such as automobiles and electronic products.

“Trade volume dropped 6.5 percent across the world during the 2008 global financial crisis,” the think tank said. “Trading of automobiles and electronics goods was more sluggish to decline by 13.9 percent during the period.”

A researcher of the Korea Institute of Finance hinted that the nation’s GDP growth could stay below 4 percent under the scenario that the U.S. falls into a double-dip or the eurozone woes worsen.

In May, the KIF projected that 2011’s economic growth will come to 4.4 percent.

Further, Korea’s dependence on exports and imports is about to reach an all-time high in the coming months while the nation has been posting the highest ratio among the Group of 20 members in trade reliance.

Though the Finance Ministry had pledged to boost domestic service sectors in a bid to lower possible risks from global economic woes, the overseas trade dependence ratio has been on a rising trend again.

According to the Bank of Korea, the ratio of exports and imports to the nation’s gross domestic product came to 110.1 percent in the first quarter of 2011, approaching the record-high during the 2008 global financial crisis.

After peaking at 114.6 percent during the fourth quarter of 2008, the trade dependence ratio stayed below 100 percent between early 2009 and early 2010.

But the ratio surpassed 100 percent again ― 103 percent in the second quarter of 2010, 102.8 percent in the third quarter of 2010, and 104 percent in the fourth quarter of 2010.

The figure for Korea is quite high compared to other G20 countries. While the nation posted 95.9 percent in 2009, the U.S. and Japan saw their dependence ratio stand at 25.1 and 24.8 percent.

Korea has far exceeded Mexico, Germany and China ― three of the many countries with a relatively higher trade dependence ratio ― over the past few years.

But government officials downplayed the growing anxiety among some critics during their news conference ― jointly hosted by the finance ministry, the central bank and financial regulators ― for foreign media last Thursday.

While the growth rate of the U.S. stood at 0.4 percent in the first quarter and 1.3 percent in the second quarter, Korea’s exports to the U.S. grew by more than 20 percent during the first half of 2011, the officials said.

An economist at the Samsung Economic Research Institute said the nation’s recent diversification of export destinations will ease the impact from the sagging U.S. economy.

By Kim Yon-se (kys@heraldcorp.com)