No time for elation

International oil prices are nose-diving, having plunged by a whopping 40 percent since June. On Monday, West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, wrapped up its trading at $63.05 per barrel in the New York Mercantile Exchange. It was a 4.2 percent drop compared to the previous day and marked the steepest fall in five years and five months, since July 2009.

The plummeting oil prices are a result of complicated factors, including the United States’ expansion of shale gas production, OPEC’s gritty reactions to that and the global economic slowdown. There is no dispute over the prediction that oil prices will go down further. Morgan Stanley forecast they will even drop below the ceiling of $43 per barrel next year.

The downward spiral is a mixed blessing for the global economy. While oil exporters like Russia and Brazil will suffer from the plunge, major importers like Germany and Japan will be beneficiaries. Overall, it could provide more benefits than losses for the global economy. Christine Lagarde, managing director of the International Monetary Fund, has come up with the analysis that if prices of crude oil drop by 30 percent, it will raise the growth rate of advanced nations by 0.8 percentage point.

The fall of oil prices is also a boon for the Korean economy. Goldman Sachs predicted that if prices fall by 20 percent, the Korean economy will grow by 1 percent. Korea imported $100 billion worth of crude oil last year. The oil price fall mostly serves as an energizer for a virtuous cycle in the economy by helping curb inflation while contributing to palpable increases in exports and consumption.

However, we cannot be elated at the price fall forever, as it could actually be a Holy Grail with poison inside. The Wall Street Journal reported warnings from some economists that it could be a prelude to a global economic recession. Squeezed in between China and Japan - and challenged by China’s ever-growing competitiveness - our economy could face a tough time when our companies have more trouble exporting their products than before. When that happens, the oil price fall could build more pressure for deflation while dampening domestic demand.

The plunge in oil prices could also trigger a financial crisis in emerging economies after strengthening the power of the U.S. dollar. The government and industry must refrain from enjoying low oil prices. They must prepare for another cataclysmic shift in the world economy.

JoongAng Ilbo, Dec. 10, Page 34