Fears grow of won pouring cold water on the economy

The appreciation of the local currency against the U.S. dollar is threatening economic growth, a private think tank said yesterday.

“The won’s rise is hurting the profitability of exporters and it is very likely to serve as a risky factor that could slow the economy,” said the report by the Hyundai Research Institute.

The won has been gaining ground against the greenback as major countries inject heavy doses of liquidity to prop up their economies. With more money available, and eased worries over the euro zone’s sovereign debt woes, the appetite for riskier assets is growing, pushing the won’s value upward in recent months.

The won-dollar exchange rate closed at 1,103.1 won on Tuesday, meaning the local currency has gained 4.3 percent this year. A stronger won hurts exporters by making their products more expensive overseas.

The report predicted the local currency will continue to climb given the country’s strong fundamentals and a growing influx of foreign investment.

On the flip side, a stronger won could boost corporate investment in facilities and stabilize consumer prices, the report said, but worsening profitability among exporters could still weigh on the country’s economy, which depends heavily on outbound shipments.

A 10 percent rise in the won’s value increases the export prices of manufactured products by 2.1 percent, the report said, stating that a stronger currency could dent local companies’ price competitiveness.

Based on trade data in September, the report said the profitability of mobile phones, semiconductors and automobiles, the country’s major export items, have shrunk 4.4 percent, 0.7 percent and 0.1 percent, respectively.

Yonhap