Riddles of the Korean Economy (2)
Despite record-high oil prices and the Won's rise against the U.S. dollar weighing on the country's export-driven economy, many local economic institutes still remain optimistic about Asia's fourth-largest economy. The Korea Development Institute recently revised up its forecast of the economic growth from the previous 5.0 percent to 5.3 percent. The Korea Institute of Finance also raised its growth forecast to 5.2 percent from 4.7 percent, while the LG Economic Research Institute (LGERI) kept its original 4.7 percent unchanged in its most recent report. Such widespread optimism about the nation's economy makes many observers scratch their heads as it comes amid a flurry of unfavorable economic conditions such as skyrocketing oil prices and the Won's appreciation versus the greenback. The explanation of the seemingly ironic economic conditions can be found by reviewing three major factors confronting the local economy: oil prices, the won-dollar exchange rate and the "shocks" from the mainland China, experts say.For starters, oil prices have risen 21.1 percent since the start of this year, but average gasoline prices at the pump have risen only 4.7 percent as a rise in the Won against the U.S. dollar offset a gain in energy prices. Ironically enough, consumer prices have remained stable at 1.6 percent, thanks to the flow of cheap Chinese products and ongoing effort by companies to reduce production costs keeping hikes in consumer prices at bay. As for the concerns that a fall in the won-dollar exchange rate could turn the nation's trade surplus into a deficit, experts also say that the export-driven economy is now less dependent on prices than on quality, so that the effect from the currency fluctuations will be minimal. The so-called "China shock" from the mainland's interest rate hikes and less optimistic forecast of its economic growth for this year is still overstated, experts added. Indeed, the International Monetary Fund recently revised up its growth forecast for China from 8.2 percent to 9.5 percent, dismissing the concerns as nothing but overblown. But take a close look at the revised forecasts by the local institutes about the South Korean economy and we will find that we cannot afford to fall into complacency mainly because most of the revisions are mainly based on the better-than-expected economic growth in the first quarter of this year. Those economic institutes rather revised down their economic growth forecasts for the second and third quarters of this year, painting bleaker outlooks for the nation's economy. "So far, so good," said Shin Min-young, a researcher at LGERI. "But it seems that oil prices and the Won's appreciation will likely weigh further on the nation's economy. The direction of the economy down the road will depend on whether it is positive or negative influences that win the upper hand." Kwon Tae-ho, ho@hani.co.kr
