The Korea Herald


Exports likely to sway Korea’s 2014 economy

Exports expected to make up 60% of GDP, while consumer debt still barrier to upbeat sentiment

By Kim Yon-se

Published : Dec. 30, 2013 - 20:08

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Hyundai Motor vehicles bound for export await shipment at a port near the company’s plant in Ulsan.(Lee Sang-sub/The Korea Herald) Hyundai Motor vehicles bound for export await shipment at a port near the company’s plant in Ulsan.(Lee Sang-sub/The Korea Herald)

Korea’s major economic indices are estimated to have bottomed out between 2012 and 2013, after the worldwide slowdown involving the eurozone fiscal crisis undermined both consumer and producer sentiment here, while also dealing a blow to exporters.

The two-year slump worsened the already lackluster consumption in the private sector burdened by mounting household debt.

Coming into its second year, the Park Geun-hye administration is pinning hopes on favorable results in the local market indices in the latter half of 2013, following signs of recovery in the U.S. and major European economies.

Reports from some private think tanks and state-run research institutes underline the export sector, which was equivalent to about 57 percent of Korea’s GDP in 2012 despite hurdles in outbound shipments due to the eurozone debt woes.

On the back of positive global indices since the first half of 2013, they forecast that exports would make up a larger portion of economic growth in the coming months and years.

The weight of outbound shipments in the national economy is growing. The ratio of exports to GDP was 29.3 percent in 1997 and reached 45.5 percent in 2003. The figure has continued to climb since then, rising to 53 percent in 2008 and 56.2 percent in 2011.

Though the nation’s economic growth plunged from 3.6 percent in 2011 to 2.0 in 2012, it is estimated to have bounced back to 2.8 percent in 2013.

The Bank of Korea has predicted that the rebound would continue, projecting on-year gross domestic product growth for 2014 at 3.8 percent. The Finance Ministry has set the growth target at 3.9 percent.

More and more global investment banks are painting a rosy picture of the 2014 Korean economy. Barclays said it predicted 4.1 percent growth, followed by Nomura with 4 percent. BNP Paribas and Deutsche Bank suggested 3.9 percent.

However, the Organization for Economic Cooperation and Development recently revised down Korea’s 2014 GDP outlook from 4 percent to 3.8 percent, as Asia’s fourth-largest economy is highly exposed to external factors stemming from unorthodox policies implemented by advanced economies.

It suggested that Korea would need to keep inflation in check with its monetary policy as its economy recovers this year.

“As the recovery gains pace, monetary policy will need to tighten to keep inflation in the target range,” the OECD said in a report. “However, if downside risks materialize, Korea has scope to use both monetary and fiscal stimulus to support growth.”

Policymakers are striving to overcome the low-growth era, as the yearly economic output has mostly remained bearish since 2008 after posting 4.6 percent in 2004, 4.0 percent in 2005, 5.2 percent in 2006 and 5.1 percent in 2007.

Meanwhile, Moody’s Investors Service said in late November that the nation’s consumer debt growth has had an adverse impact on the credit rating of the nation’s financial industry.

Moody’s is concerned that household debt problems facing mid- to low-income brackets are worsening at an accelerated pace.

Many other research agencies at home and abroad have already warned that the household debt will still somewhat hinder a recovery in domestic demand, which may in turn lower the economy’s growth potential.

Household debt has increased annually by double digits over the past decade, twice as fast as income growth.

According to Bank of Korea data, households saw their combined debt snowball with annual expansion of 11.7 percent between 1999 and 2012. In contrast, their annual income growth stood at 5.7 percent.

Household debt is estimated to have exceeded 1 quadrillion won ($909 billion), surging from about 665 trillion won five or six years ago.

The figure indicates that per capita debt has reached 26 million won.

Further, the nation’s household debt-to-GDP ratio reached 81 percent, exceeding the 73 percent OECD average, according to the Korea Chamber of Commerce and Industry. Korea ranked third in the pace of debt growth among OECD members with 9.8 percent, following Greece (12.1 percent) and Turkey (10.8 percent).

Households’ grave financial situations will remain a issue in the new year.

Korea saw 2.3 percent on-year growth in GDP during the second quarter of 2013. Households’ real income, however, grew only 1.3 percent over the corresponding period.

Economists say that a significant issue is whether or not the nation would see a soft landing in resolving its household debt woes.

“Regulators are exercising stern regulations on first-tier banks’ lending. But banks’ tighter screening for loan eligibility will lead more borrowers to secondary financial firms that charge higher interest rates,” said Hyundai Economic Research Institute research fellow Park Deok-bae.

By Kim Yon-se (