Vigilance on the economy

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Vigilance on the economy

The U.S. dollar has continued to weaken, barely maintaining the 1,120 won threshold against the Korean won. Meanwhile, global crude oil prices climbed higher, with the price in Dubai hovering above $80 per barrel. These are 15-month highs for both the Korean won and crude oil prices. That casts a dark cloud over the prospects for the Korean economy, which is mainly driven by exports and industrial activities. Korean companies have based this year’s sales outlook on an exchange rate of around 1,100 won against the greenback and oil prices of $80 per barrel.

The weakening of the dollar and the increase in global oil prices is a double whammy for Korea Inc., dashing predictions that the Korean economy will grow more than 5 percent this year. Economic pundits expect the trend of a weak dollar and strong oil prices will continue because investors generally pursue commodities as an alternative safe bet when the American dollar loses ground.

Meanwhile, the appreciation of the Korean currency suggests greater confidence in the Korean economy. Foreign investors are returning to the Korean bourse and the country’s foreign exchange reserves have topped $270 billion. Korean companies have built their resistance to the effects of outside shocks and the volatility of global trade by diversifying their product lines and increasing the number of manufacturing outlets they control overseas.

But no company can weather this tumultuous environment for long. A strong won and oil prices bite into the trade balance by cutting exports and making imports more expensive. If our trade surplus withers, our economy will, too. There is no panacea for an ailing economy. The fluctuations in the foreign exchange rate can be slowed to some extent but the direction of the change cannot be reversed. Oil prices also are beyond our control. We have few options but to stay alert. We must reignite the corporate restructuring drive and accelerate development of new growth-oriented businesses.

Former Samsung Group Chairman Lee Kun-hee, speaking at the Consumer Electronics Show in Las Vegas, said, “Everyone in our society should reinvent themselves to endure the 21st century. We must be wide awake. Samsung, too, can devolve into a small community store in 10 years time if it doesn’t recreate itself.”

It is a warning to us all as we watch the global wave turn perilous once more.
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