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Trade deficit is likely as exports fall on rising won

Higher oil prices are the biggest threat to continued economic recovery here

Aug 22,2009
Korea may post its first trade deficit in seven months as the robust exports buoyed by the weak won earlier this year are starting to sputter after the Korean currency strengthened against U.S. dollar recently.

According to the latest data from Korea Customs, Korea has racked up a trade deficit of $2.1 billion from Aug. 1 to 20.

Exports amounted to $16.2 billion and imports were worth $18.3 billion during the period.

The country’s companies tend to import more products and materials at the beginning of each month and export more at the end of each month.

This means more exports are likely during the remaining 10 days of this month.

But the country has never posted a deficit like August during the first 20 days of each month from February to July, meaning economic policy makers and experts should take note.

In January, the trade deficit in the first 20 days amounted to $4.5 billion and the country managed to reduce the loss by $800 million for the rest of the month.

Experts said it is unlikely that the trade balance will suddenly go south for the rest of this year but the handsome gains in trade shown earlier this year are unlikely to be repeated.

Samsung Economic Research Institute predicted the trade surplus for the third quarter of this year will amount to $7.3 billion, far lower than the second quarter trade surplus of $17.7 billion.

The major culprits behind the latest developments are the strengthening of the won and rising oil prices.

Both will inevitably squeeze local exporters and companies exporting a large amount of crude oil for their production activities.

The won-dollar exchange rate, which hovered around 1,570 won per dollar in March, has declined to 1,246.9 won as of Aug. 20.

A strong won means Korean products sold in overseas markets will become more expensive, removing the competitive edge the country had when the won was weak.

Also, the price of Dubai crude oil, Korea’s benchmark, is now about $70 per barrel, far higher than the $40 posted earlier this year.

“The oil price hike is the biggest threat,” said Kim Jeong-sik, economics professor at Yonsei University. “The value of imports to Korea increases about $8 billion for each $10 increase in oil price per barrel.”




By Kim Young-hoon [hawon@joongang.co.kr]



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