Europe's warm winter means sunny spell for Korean economy

A man pulls a child on a sled over a meadow with melting snow in Filzmoos, Austria, on Jan. 6. [AP/YONHAP]

Europe’s unseasonably warm weather has brought pleasant surprises for the Korean economy due to lowered energy prices and a weakening dollar.

Energy consumption plummeted in Europe as it experienced a historically warm winter.

As of this year, the average temperature for nine European regions hit an all time-high of 15 to 25 degrees Celsius (77 degrees Fahrenheit), according to BBC reports Monday. On Jan. 1, the temperature in Switzerland surpassed 20 degrees Celsius for the first time ever, while Denmark’s New Year's day temperature recorded 12.6 degrees Celsius, another all-time high record.

Europe’s mild weather means less energy consumption and less usage of natural gas for heating. Less gas usage has quelled worries about energy shortages due to the lack of Russian gas.

Gas inventory for Germany, known to be one of the largest consumers of gas among European Union countries, was 87.8 percent as of Dec. 24, which was 14.8 percent higher than the five-year average inventory of 73 percent, according to its Federal Network Agency.

As gas prices fell, prices for other energy sources such as crude oil and coal stabilized, and ultimately, weakened the dollar. Dutch TTF natural gas futures price recorded 64.8 euros per megawatt. Compared to Aug. 26, when it recorded 339.2 euros per megawatt at its highest, the price decreased by 80.8 percent.

West Texas Intermediate (WTI) crude on Tuesday decreased 0.85 percent from the previous trading day to $79.19 per barrel.

The warmth is also spreading across the global finance market. Europe was anticipated to go through a recession due to an energy shortage this winter, but less-than-expected consumption turned the tables for the global economy.

Eurozone’s manufacturing Purchasing Managers’ Index (PMI) for December rose from 47.1 in November to 47.8.

A figure below 50 indicates contraction in the sector, while above 50 indicates expansion.

The U.S. dollar index, which is a relative measure of the dollar’s strength against a basket of six currencies, including the euro and the yen, plunged to 102.20 on Sunday compared to September, when it was hitting 110.

When the index surpasses 100, the dollar value is higher compared to other currencies.

The dollar depreciation gave a boost to the local stock market and can create a favorable export environment.

The won peaked at around 1,400 against the dollar and recently stabilized to around 1,200. When the dollar value falls, foreign investment in other currencies spikes.

Kospi, which fell to the range of 2,200, steadily rose for nine consecutive days to close at 2,379.39 on Tuesday. The rise of the won against the dollar also improves trade balance as it lowers the burden on import costs.

Inflation eased as well. Consumer price growth rate for July was 6.3 percent compared to a year earlier in July. In comparison, the growth rate fell to 5 percent in December on-year.

However, experts are uncertain whether the warm weather will continue to cast a sunny spell on the domestic market.

“Although the forecasted energy depletion that we worried about did not become a reality, crude oil prices are still high and there's still economic pressure for inflation,” said economics Professor Sung Tae-yoon of Yonsei University. “As the Federal Reserve shows no signs of tightening its policies, we still need to pay heed to the global market.”

In the first 10 days of January, Korea’s trade balance was negative $6.27 billion due to a decline in the exports of semiconductors and machinery despite stabilizing raw material prices and a stabilizing won.

BY KIM NAM-JUN, LEE JAE-LIM [lee.jaelim@joongang.co.kr]