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(EDITORIAL from The Korea Herald on Oct. 13)

All News 07:06 October 13, 2016

Pivotal moment
Opportunity is seen despite woes of oil prices, Samsung-Hyundai crisis, US rates

Unfavorable factors are simultaneously casting an ominous shadow over the Korean economy.

Aside from many of the OPEC members, some non-OPEC countries are reportedly poised to move to curtail crude oil output. International crude prices have surpassed the highest level in a year to hover at around $50 to $53 a barrel.

Future prices are up to producers -- Russia, Iran, Iraq, Libya and Nigeria -- which have taken an ambiguous or wait-and-see stance toward the uniform reductions. The coming choice of Russia is drawing wide attention in particular, which is the world’s third-largest crude producer and the largest among non-OPEC nations.

The producers are still tentative in their consensus about a cap in production as some countries are reportedly considering output increases, to the contrary, in a bid to keep up pressure on US shale gas developers.

Countdown has started anyway despite the lingering uncertainty. So South Korean industries have to be alert to the OPEC's regular meeting, slated for late November in Vienna. A further spike in the prices of raw materials like petroleum will certainly elevate the cost burdens for manufacturers.

As for the household sector, a recent rapid bounce back in prices is bound to cast a chill over consumer sentiment.

The ongoing slump in exports and weak purchasing power will be a dual threat to the economy.

In the latest 10-day performance, the nation’s exports continued its negative growth by posting an 18.2 percent fall on-year.

Korea's largest exporter, Samsung Electronics, could drag down annual gross domestic product, as it has halted production of its troubled Galaxy Note 7 smartphones after some devices reportedly caught fire even after being replaced.

Such reports may undermine consumer trust in Samsung's other smartphone models and home appliances. Its share price, which previously peaked at 1,706,000 won ($1,520) lost 10 percent in only three trading sessions to close at 1,535,000 won Wednesday.

Meanwhile, the country’s second-largest exporter, Hyundai Motor, faces a government-led probe for some Grandeur sedan models equipped with the Theta II engine.

Some of the carmaker's Sonata sedans had an engine-defect problem in the US market. There is also an airbag safety issue domestically. In addition, the Hyundai-Kia union’s strike has caused a hitch in output over the past month.

As the collective annual sales of Samsung Electronics and Hyundai Motor are equivalent to more than 15 percent of the nation’s GDP, it is urgent for the key exporters to make full-fledged efforts to regain credibility and ease worries over safety by correcting product defects.

Samsung needs to be transparent in publicizing its product defects, while Hyundai should proactively cooperate with the Transportation Ministry’s probe.

Prudent, non-risky state policy is also significant at this point. Chances are high that the US Federal Reserve will raise its key base rate later this year, as predicted by a majority of global investment banks.

Using a rate cut by the Bank of Korea to help the troubled conglomerates would trigger higher import prices of crude oil and other raw materials because the Korean currency would lose value, irrespective of the Fed’s rate.

The central bank and the government should not derail the uniform move by emerging countries to make contingency plans ahead of the Fed’s December gathering.

Policymakers, on the other hand, need to highlight other aspects, such as how there could eventually be potential opportunities for local enterprises.

Monetary tightening by the Fed would mean that its economy is recovering at a steady pace and this is quite a positive signal for local businesses, as the US is Korea’s second-largest single export destination.

Most of all, the US economy’s vitalization means a global economic recovery, which benefits Korea’s overall exports.

The next president in the White House might also unveil a stimulus package during his or her first year in office.

Despite the present uncertainties, local policymakers should grab the chance and effectively cope with the current global business and financial environments.


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