The Korea Herald


Japan quake spells trouble for Korean economy

By 황장진

Published : March 17, 2011 - 18:29

    • Link copied

Foreign investment banks (IBs) see little short-term impact from last week’s earthquake in Japan on the Korean economy but they are concerned over its longer-term impact as the disaster could eventually hurt the nation’s exports by disrupting the parts supply from the neighboring country, a report showed Thursday.

Recent reports on economic conditions at home and abroad by foreign banks including Morgan Stanley and Bank of America Merrill Lynch were monitored and compiled in a report by the Seoul-based Korea Center for International Finance (KCIF).

They were quoted by the report as saying that the massive 9.0-magnitude earthquake and ensuing tsunami that hit Japan last Friday will have a “marginal” effect on the Korean economy in the short term as its trade with the nation remains relatively small.

They even raised the possibility that some Korean firms in the steel and semiconductor sectors could gain ground in the global market for some time as its Japanese rivals are suffering from the suspension of factory operations in the wake of the disaster.

But in the longer term, the foreign IBs shared the view that the devastation in Japan could pose a threat to the Korean economy, citing the nation’s heavy dependence on supply of parts from the world’s third-largest economy.

They said that Korea’s imports from Japan accounted for

15.1 percent of the total last year but its import of parts from the country reached 25 percent. A protracted supply disruption could affect production of manufacturing companies here such as shipbuilders, steelmakers and automakers, the report noted.

The foreign IBs also expressed concerns that exports could eventually be dented further by the weakening Japanese currency caused by its struggling economy, which would make Japan’s products cheaper in the international market compared with Korean goods, according to the report.

Katrina Ell, associate economist at Moody’s Analytics, said Japan’s devastating earthquake may disrupt Korean manufacturing production, as many Korean manufacturing companies rely on parts made in Japan.

“Although Korea is a major competitor of Japan, industrial parts from Japan accounted for one-quarter of Korea’s imports in 2010,” said Katrina Ell, associate economist at Moody’s Analytics.

“So long delays in supplies from Japan will no doubt weigh on Korea’s production.”

The four most severely affected prefectures ― Iwate, Miyagi, Fukushima and Ibaraki ― are home to industries that include farming, auto parts and electronics, and are estimated to make up 6 percent of Japan’s economy.

Following last Friday’s 9.0-magnitude earthquake and subsequent tsunami, Japan’s transportation infrastructure has been crippled, electric power to factories is facing constant disruption and nuclear power capacity has been severely limited, Ell said.

The economist expects factory shutdowns in the quake-affected area to harm global output, as Japan plays a pivotal role in the global production supply chain.

Japan supplies one-fifth of the world’s semiconductors, makes automobile engines needed in assembly plants around the world, and is one of the leading producers of LCD displays, according to Moody’s Analytics.

“If factories are unable to transfer production to facilities elsewhere in Japan or abroad, this is a downside risk to the global recovery,” Ell said. 

(Yonhap News)