The Korea Herald


Korean economy to suffer big from oil price surge

By 황장진

Published : April 12, 2011 - 18:48

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Korea is likely to see its economic growth rate fall more than 2 percentage points if international oil prices top the $200 level, a report showed Tuesday.

The report comes amid worries that the shortfall of oil production in Libya and continued unrest in the region may send crude prices even higher and dent the growth of economies around the world.

According to the report by Britain-based Standard Chartered Bank, Korea’s 2012 GDP forecast is likely to dip 2.5 percentage points if the Brent oil price hits $200 per barrel. The bank predicted Asia’s fourth-largest economy to grow 5.2 percent when the price hovers around $95 a barrel.

The report said the Brent oil price of $200 per barrel is likely to jack up Korea’s consumer prices by an additional 2 percentage points and throw its current account balance into the red.

In that case, the global economy is also likely to suffer another recession as consumers cut back on spending as fears of job losses and businesses decrease new investments and production, the report said.

High-flying oil prices, meanwhile, may prompt Korean policymakers to shift their current monetary policy.

“Policymakers would be more worried about growth and the current account balance than inflation, and would implement monetary easing by cutting policy rates and (implicitly) encouraging Korean won weakness,” said Oh Suk-tae, a senior economist at Standard Chartered Bank’s local unit, in the report.

“They may take the view that a significant slowdown in economic growth would eventually reduce inflationary pressures, despite high headline inflation of 6 percent or above,” said Oh.

In March, the Bank of Korea raised the key rate by a quarter percentage point to 3 percent to tame inflationary pressure but the central bank on Tuesday froze it for April. 

(Yonhap News)