News Focus) Falling exports, rising crude dent budding optimism for S. Korea's

(By Koh Byung-joon
SEOUL, June 8 (Yonhap) -- When the world was buffeted by the financial turbulence
following the collapse of Lehman Brothers last summer, there seemed to be no end
in sight to a freefall not just for the global economy but also for South Korea's
export-driven one.

Frozen domestic consumption, sluggish corporate investment, surging oil prices
and fluctuating financial markets all made it tough to predict a quick recovery
from what is feared to be the worst downturn in more than a decade.
Fortunately, the mood has been changing significantly in recent months -- at
least for the local economy -- as some indicators point to a turnaround and
external business conditions improve.
Still, analysts and policymakers are divided over the pace of the economic
recovery as exports remain in a deep slump and recently-rising oil and raw
material prices are clouding the outlook for Asia's fourth-largest economy.
"One thing is sure that the economy has been bottoming out," said Kwon Soon-woo,
a senior economist at Samsung Economic Research Institute, the nation's leading
private think tank. "A downturn in economic indicators is coming to a halt, with
some of them starting to take a upturn."
Recent indicators are backing up his view. According to the Bank of Korea, South
Korea's current account amounted to US$4.28 billion in April, the third straight
month of surplus since February, as imports declined more than exports amid a
global economic slump.
Industrial output contraction is also easing. Production shrank 8.2 percent in
April from a year earlier, compared with a 10.5 percent on-year decline in March,
the first time that output has fallen by a single digit after contracting 10
percent or higher over the previous five months.
Business sentiment improved. South Korean manufacturers' sentiment for June rose
to the highest level since October as stabilizing currency and improving economic
indicators fueled corporate optimism.
Favorable news is also being heard from consumption. Sales of consumer goods in
April fell 4 percent from a year earlier after declining 5.2 percent in March,
according to government data.
The nation's economy managed to avoid a technical recession or two consecutive
quarters of minus growth, with gross domestic product expanding 0.1 percent
during the first quarter from three months earlier, according to the central
bank. For the last quarter of 2008, GDP plunged 5.1 percent.
Stoking optimism that an economic free-fall is coming to an end, financial
markets are stabilizing with currency and stock markets gaining ground.
The South Korean key stock index KOSPI rose 23 percent so far this year while the
local currency strengthened almost 26 percent since hitting an 11-year low in
early March thanks to increased confidence in money flow following sustained
current account surplus.
In an earlier report, the Organization for Economic Cooperation & Development
said that South Korea's economy is expected to recover at the fastest pace among
the world's major countries.
However, the government remains cautious against what it calls premature
optimism, citing weak exports and tightened job markets that could weigh on an
upturn on domestic demand.
"While financial markets are stabilizing and industrial output continues its
on-month expansion, the overall economy still remains in a slump due to weak
domestic demand, exports and employment markets," the Ministry of Strategy and
Finance said in its monthly economy-assessment report.
"A global economic downturn is abating and the local economy is also on the road
to recovery but the pace of the rebound is weak and uncertainty in worldwide
financial markets and concerns over rising oil prices make it tough to paint an
optimistic outlook for the future," it added.
Echoing the ministry's view, state-run think tank Korea Development Institute
said, "The Korean economy is still considered to be in a recession phase,
although some economic indicators are showing improvements."
Exports are showing few signs of a marked rebound amid a protracted global
recession. In May, overseas shipments plunged 28.3 percent from a year earlier, a
sharper contraction than a 19.6 percent fall in April, according to government
data.
Growing optimism for a global economic revival pushes up demand for oil and raw
material prices, raising their export prices, which experts worry might pose a
threat to local exporters. South Korea is the world's fifth-largest oil importer.
Since the start of this year, oil prices nearly doubled to $69.08 per barrel last
week. Goldman Sachs forecast in a recent report that crude prices will jump to
$85 per barrel by the end of this year.
A strengthening local currency is not good news either for exporters as a
stronger won makes their products more expensive in overseas markets, denting
their price competitiveness compared with their rivals.
"Rising oil prices and a weak local currency might offset each other but all of
those factors will negatively affect exports," said You Byong-gyu, an executive
director of Hyundai Research Institute.
"Against this backdrop, the government should craft measures to bolster exports
including those aimed at helping diversify export destinations. It is should also
make efforts to stem a steep fall in the won-dollar exchange rate, in order to
ensure the nation's exports aren't affected significantly," he added.
kokobj@yna.co.kr
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