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Falling oil prices may lift consumption, investment
By Shin Ji-hyePublished : Nov. 28, 2014 - 21:16
Tumbling oil prices, caused by Thursday’s decision by the Organization of the Petroleum Exporting Countries to maintain oil production levels, is expected to improve consumption and investment in oil-dependent companies, industry sources said.
However, there are lingering worries that oil’s continued slump may push consumer prices low enough to cause deflation, damaging economic growth.
“The drop in the cost of oil imports may be a good sign for the Korean economy as a whole except some industries, such as oil refineries and shipbuilders, as it can lower uncertainties in the business environment and thus facilitate companies’ investments and production,” said Lee Bu-hyung, a researcher at Hyundai Research Institute.
The institute predicted that every 10 percent drop in oil price would lead to a 0.02 percent rise in corporate investments, 1.19 percent rise in exports and 0.68 percent rise in consumption.
This all may push up gross domestic product 0.27 percent, the research firm said.
By industry, automobile, airline and shipping businesses may benefit the most from the drop in oil price by saving fuel costs. Car sales may increase as consumers can save on the cost of running a vehicle.
As a case in point, the operating profit of Korean Air, the nation’s flagship air carrier, rose 50.4 percent during the third quarter of this year compared with the same period a year earlier.
Betting on the continued fall in oil prices, the airline said it planned to purchase 49 additional airplanes by 2017.
However, some experts have raised concerns that the oil price decline may put downward pressure on inflation, which is already too low to lift the economy.
Even the government has warned that the Korean economy may fall into deflation.
Every 10 percent drop in the oil price leads to a 0.46 percent fall in consumer prices, according to the institute.
Kim Doo-un, a researcher at Hana Daetoo Securities, said, “Korea’s consumer prices are likely to grow less than 1 percent if oil prices continue to fall.”
By Shin Ji-hye (shinjh@heraldcorp.com)
However, there are lingering worries that oil’s continued slump may push consumer prices low enough to cause deflation, damaging economic growth.
“The drop in the cost of oil imports may be a good sign for the Korean economy as a whole except some industries, such as oil refineries and shipbuilders, as it can lower uncertainties in the business environment and thus facilitate companies’ investments and production,” said Lee Bu-hyung, a researcher at Hyundai Research Institute.
The institute predicted that every 10 percent drop in oil price would lead to a 0.02 percent rise in corporate investments, 1.19 percent rise in exports and 0.68 percent rise in consumption.
This all may push up gross domestic product 0.27 percent, the research firm said.
By industry, automobile, airline and shipping businesses may benefit the most from the drop in oil price by saving fuel costs. Car sales may increase as consumers can save on the cost of running a vehicle.
As a case in point, the operating profit of Korean Air, the nation’s flagship air carrier, rose 50.4 percent during the third quarter of this year compared with the same period a year earlier.
Betting on the continued fall in oil prices, the airline said it planned to purchase 49 additional airplanes by 2017.
However, some experts have raised concerns that the oil price decline may put downward pressure on inflation, which is already too low to lift the economy.
Even the government has warned that the Korean economy may fall into deflation.
Every 10 percent drop in the oil price leads to a 0.46 percent fall in consumer prices, according to the institute.
Kim Doo-un, a researcher at Hana Daetoo Securities, said, “Korea’s consumer prices are likely to grow less than 1 percent if oil prices continue to fall.”
By Shin Ji-hye (shinjh@heraldcorp.com)
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