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(News Focus) Korea Inc. off to shaky start amid slumping exports

All News 13:27 January 18, 2016

By Byun Duk-kun

SEOUL, Jan. 18 (Yonhap) -- The South Korean economy is getting off to a shaky start this year as exports remain in the doldrums and consumer spending loses ground in the face of China's stock rout, North Korea's nuclear test and other negatives, experts said Monday.

The rough start belies what many see as a government effort to draw a rosy picture of Asia's fourth-largest economy in an attempt to boost the confidence of consumers and other economic players.

The government has offered an upbeat forecast that the economy will likely grow 3.1 percent on-year in 2016 thanks to improving exports and consumer spending, though the Bank of Korea (BOK) cut its growth projection to 3 percent from an earlier 3.2 percent.

BOK Gov. Lee Ju-yeol earlier forecast the country's exports to grow this year, partly on the back of a recovery in global trade.

"The general view is that global trade will grow at a faster rate this year, and based on such an outlook, we hope our export conditions will also improve this year," he has said.

However, government data show South Korea's exports have fallen into a downward spiral this month following last year's downturn.

In the first 10 days since the beginning of the year, outbound shipments plunged 22.5 percent from the same period last year, according to the data by the customs office.

The experts note a 10-day figure is not even nearly sufficient to show the course of an entire year but say the repeated reasons for the drop may.

The drop in exports last year was attributed mainly to low global oil prices pulling down prices of petroleum and petrochemical products, which accounted for nearly one-fourth of its overall shipments prior to the fall in global oil prices.

The average price of Dubai crude, South Korea's benchmark, came to US$50.7 per barrel in 2015, down 47.5 percent from the average $96.6 per barrel the previous year.

The BOK projected average oil prices to come in the high $40 range in the second half of the year.

On Friday, the price of Dubai came to $26.22 per barrel after falling below the $30 mark for the first time in nearly 12 years on Jan. 7.

Many believe global oil prices may further decline to the 10-dollar range and be kept at record low levels throughout the year.

"With global demand slackening due to a slowing economy in China, the world's largest importer of raw materials, oil prices will likely show tight movements within the $30 range for a long, extended period of time," Lee Joon-hyup, a researcher from Hyundai Economic Research Institute, said earlier.

Falling oil prices are also estimated to have made a big dent in emerging markets, to which nearly 60 percent of South Korea's overseas shipments go.

Given the dismal performance during the first 10 days, watchers warn that South Korea will likely post negative growth in its exports for January.

Making matters worse, the outlook for first-quarter exports is not so bright.

According to a recent poll by the Korea Trade-Investment Promotion Agency, the leading index for the country's exports stands at 50 for the first quarter, up a mere 1.4 points from three months earlier.

A reading above 50 means a majority expects improvements in overseas shipments.

On top of slumping exports, consumer spending, one of the two major pillars for growth that helped keep the local economy growing even at a slow pace last year is also showing signs of an extended slump.

"The vigor of consumer spending seen so far since the beginning of the year is even weaker than that of the same period last year. We are seeing some signs of recovery in areas backed by government support, but the momentum is not currently spreading to other areas," said Lee Geun-tae, a senior researcher at LG Economic Research Institute.

Local spending was dealt a crippling blow in 2015 when the outbreak of Middle East Respiratory Syndrome (MERS) kept people away from public venues, including shopping malls and tourist destinations, out of fear of catching the disease.

Sales of the tourism industry plummeted before slowly recovering toward the end of the year, while retail sales also showed record drops.

In June 2015, when the MERS outbreak was at its peak, combined sales of the country's three major discount outlet chains and three department stores plunged 10.2 percent and 11.9 percent on-year, respectively, according to the Ministry of Trade, Industry and Energy.

Retail sales again began to decline late last year, while consumer spending contracted 1.1 percent from the previous month in November.

E-Mart, one of the three major discount outlet chains here, reports its sales in the first 12 days of the year dropped 3.8 percent from the same period last year.

"The downturn in local spending is a structural problem stemming from the aging of the society, growing household debts and slowing growth, which means we cannot expect a quick recovery unless we first address the problem at the very fundamental level," Samsung Securities analyst Nam Ok-jin said.

bdk@yna.co.kr
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