Korea's trade terms dip to record low in 2008 on higher oil prices

SEOUL, Feb. 17 (Yonhap) -- South Korea's terms of trade deteriorated to the
lowest level in 20 years in 2008 on a jump in oil and raw material costs, the
central bank said Tuesday.
The country's net terms-of-trade index for goods fell 13.8 percent on-year to
78.5 last year, according to the Bank of Korea (BOK). The index declined to the
lowest level since 1988 when the BOK began to compile related data.
Korea's trade terms dipped 13 percent to 75.1 in the fourth quarter from a year
earlier, hitting a record low, it added.
The index is calculated by dividing the export price index by the import price
index. The base year is 2005 with a benchmark index of 100.
"The country's terms of trade severely worsened last year, affected by surging
oil prices. Last quarter, retreats in oil prices led per-unit export prices to
fall and the global recession took a toll on the country's overseas shipments,"
an official at the BOK said.
Crude oil prices have been heading downward since peaking at almost $150 per
barrel in July. South Korea, the world's fifth-largest crude buyer, relies
entirely on imports for its oil needs.
Higher oil prices helped increase export prices of petrochemical products made in
Asia's fourth-largest economy, but in the fourth quarter, per-unit import prices
rose 5.8 percent on-year while per-unit export prices fell 7.9 percent amid
falling raw material costs.
The data comes as the South Korean economy is rapidly heading into a recession
amid tumbling exports and weakening domestic demand.
Asia's fourth-largest economy shrank 5.6 percent last quarter from three months
earlier, the sharpest fall in almost 11 years. Exports, which account for about
60 percent of the local economy, plunged a record 32.8 percent on-year in
January.
On Thursday, the BOK cut its key interest rate by half a percentage point to a
fresh record low of 2 percent, the sixth cut in four months, in an attempt to
jumpstart the sputtering economy. Since October, the BOK has trimmed the rate by
3.25 percentage points.
Finance Minister Yoon Jeung-hyun said last week the Korean economy will likely
shrink 2 percent this year, the first annual contraction since the 1997-98 Asian
financial crisis.
The International Monetary Fund predicted that the Korean economy will shrink 4
percent this year and major global investment banks forecast an average 2.3
percent contraction for South Korea.
sooyeon@yna.co.kr
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