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Economic perseverance

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Oct 06,2014
The Korean economy has found itself at yet another inflection point amid mixed global economic prospects.

The U.S. dollar is hovering at a four-year peak against many other major currencies and is likely to remain bullish thanks to a better-than-expected economic performance helped by U.S. shale gas windfall and government-led stimulus actions.

The dollar has surged more than 7 percent in recent months and is poised to grow stronger with expectations that the Federal Reserve will likely raise rates sooner than its EU and Japanese peers. A super-strong dollar can have both positive and negative ramifications on both the global economy and local economies worldwide.

The global financial market can be threatened by an exodus of U.S. dollars. The Korean stock market has tumbled due to a pullout of U.S. capital. Other emerging markets have turned rocky due to the migration of funds.

Advanced markets like Europe and Japan welcome the U.S. strengthening as it suggests better outlook for the global economy. A strong dollar can weigh on the domestic financial market, but won’t likely leave lasting harm considering the country’s strong current account surplus levels.

A strong dollar also helps export-led economies like ours. Exporters have better price competitiveness.

But that is offset by weakening in the yen as Japanese companies are Korea’s major competitors in mainstream exports. The yen has depreciated due to policy maneuvering by the Shinzo Abe administration to revive the economy. Japanese products are now becoming more competitive than their Korean counterparts for price.

Korean exporters also face strong challenges by Chinese latecomers in shipping, electronics, steel and petrochemical. Profit from these mainstream exports is not as big as before.

The decoupling of the key currencies comes at a transitional time for Korean industry, when the conventional mainstream sector is declining without new growth. But Korea Inc. has overcome inflection points in the past. It has stayed strong against headwinds from outside the country. We must be ready for financial turmoil and in the long run realign our fundamentals to make progress in the turbulent global climate.

JoongAng Ilbo, Oct. 6, Page 30


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