Even Exports

Experts predict that the increase in exports, the only firm support of the Korean economy, will greatly slow down in the second half of this year. The late recovery of domestic demand and the slowing down of export increases will cause the economic growth rate to drop.

According to a report of July 6 from the Ministry of Commerce, Industry, and Energy on imports and exports in the later half of this year, the increase in exports will slow down in the final quarter (from October to December) due to the contraction of the world economy affected by high oil prices, the retrenchment policy of the Chinese government, the increase in interest rates in the U.S., and the lack of investment in facilities.

Furthermore, the export accomplishments during last September to December were so high that the increase in exports this year, which are summed up in contrast to those of last year’s, will decrease even more.

Lee Hee-bum, the minister of Commerce, Industry and Energy, said in a recent interview with an online media outlet, “The increase in exports, which was 38 percent in the first half, might drop to a one-digit number in the second half.”

Andy Xie, a senior economist at Morgan Stanley, an American investment firm, pointed out last month at a conference held at the Federation of Korean Industries that the increase in interest rates in US will damage the Chinese economy and, in turn, will affect the Korean economy, which is highly dependent on exports to China.

UBS, a European investment bank, also said in a recent report, “Soon, Korea’s exports will peak, and that will cause a decrease in family incomes and less jobs,” and predicted the economic growth rate would be 5.1 percent, 0.2 percent lower than what it used to be.

Also, according to research by the Korea International Trade Association, the Export Business Survey Index (EBSI) for the third quarter dropped to 123.8, continuing its drop since the second half.

As the slowing down of the increase of exports turns out to be clear, predictions are being made that the economy of the second half might be worse than that of the first.

Kwon Hyuk-boo, a researcher from Daishin Securities Corporation, said, “The decrease in the economic growth rate due to the slowdown in the increase of exports should be backed up by increasing consumption and investment. However, the situation doesn’t seem very good. Although the growth rate of the first quarter was 5.3 percent, it might even drop below five percent in the second half.”

On the other hand, Jang Min from The Bank of Korea (BOK) said, “Although the rate of export increase might slow down, it seems that the amount of exports itself will exceed the amount expected. As long as consumption and investment don’t drop lower than that of last year’s, the economic growth rate won’t drop below 5 percent.”

Ki-Jeong Ko koh@donga.com