May 1, 2009｜Korean Peninsula
Im Chon Sok
Professor, The College of Commerce and Economics, Konkuk University
The ROK’s exports for the first quarter of this year, under the influence of the simultaneous slowdown of the global economy, have shown a decrease of 24.9% on the same period last year. For the ROK, which is dependent on exports for just under 40% of its GDP, it is thought that such a steep fall in exports has to date brought a decrease in the production of firms, and a concomitant decrease in employment and consumption, and hugely impacted the object economy.
Recently, however, the ROK economy seems not to have slumped to any great degree. According to the Economic Outlook for 2009, which the Bank of Korea released at the beginning of April this year, it was expected that in the first quarter of this year the rate of growth of the economy would fall 4.2% on the same period one year before. For the same period, however, the number of people unemployed was expected to increase by 160,000, and for those in employment there would be a fall of 130,000. Although the number unemployed has increased, when compared to 1998, immediately after the outbreak of the foreign currency crisis, it is quite a good performance. The economic growth rate in the first quarter of 1998 fell 5.8%, 1.6 percentage points lower than for this year, the number of unemployed persons increased by 630,000, and those in employment decreased by 1,570,000.
It appears that the business results of major companies were also not that bad. According to the survey which the ROK Maeil Business Newspaper published in the middle of April, the gross sales (the proceeds and net profit) for 2008 of the thousand largest domestic enterprises registered an 8.9%-increase on 2007 of 1,603 trillion won. This growth rate, when compared with the past growth rates of 11.3% for 2007 and 9.3% for 2006, is not a bad figure.
Where does the reason lie as to why the domestic economy is comparatively stable, despite the ROK’s exports decreasing greatly? Firstly, in terms of exchange rates, the won-dollar rate, which stayed within the 950- to 1200-won level, has decreased greatly in 2009 to the 1,400- to 1,500-won level. Consequently the value of exports converted into won has instead increased. For example, the value of exports for March of this year, at US$28.1 billion, decreased by 22% on the previous year, yet on a won-basis increased by 19%.
Next, in general terms, I would like to also focus on the fact that commodities which perform relatively well amid sluggish exports are catching attention in large number. For example, the exports of shipping vessels increased 43.6% in the first quarter of this year. Exports such as wireless communication devices, steel products, and liquid crystal devices have ended up at a comparatively modest decrease of the 10% level. Against such a backdrop, along with raising the competitiveness of these ROK industries, the following can be raised as examples: the increase of exports of green energy and the related equipment for electricity generation by wind-power, electric vehicles and hybrid-vehicle batteries which have gained attention as new growth sectors in recent years; the increase in automobile exports via the expansion of the demand abroad for compact cars via the global business slowdown; and the increase in exports of steel products accompanying the new and additional facilities for power plants in India and China, etc. Moreover, the following matters can be raised regarding the reason why the employment situation won’t become so bad: the minimizing of labor adjustment, such as company layoffs, based on the shared sense of crisis between labor and management; and that companies have actively started out on new hiring in response to the ROK government’s job-sharing policy (to increase employment by sharing jobs).
Against the backdrop of the situation where the ROK economy has relatively stabilized in this fashion, in ROK economic circles the tendency to view future business conditions optimistically is strengthening. For example, in the business forecasts recently announced by the heads of the principle domestic banks, the opinion that the economic situation will hit bottom in the fourth quarter of this year was often voiced. Additionally, according to the survey which the Federation of Korean Industries made of the executive officers of the 20 largest industrial groups, the 75% who responded judged that although the current business climate is in a position of stagnation, its pace is abating. Furthermore, 60% of those who responded foresaw the second half of next year as the period of recovery for the ROK economy.
For the future, meanwhile, of the ROK economy which has a high degree of dependency on exports, the prolongation of the global economic downtown, the uncertainty of economic recovery, and the protectionism spreading in all countries of the world are factors casting gloom. Therefore efforts must be hurried to increase domestic demand, improving the constitution of the highly-export-dependent ROK economy. There is, however, the question of how to increase domestic demand, and the problems to examine henceforth are not small in number. Only, in a world where globalization is progressing, for future demand it is necessary to place emphasis on the sectors where foreign demand is also large, and not just domestically. Recently, if one looks at the sharp increase in Japanese and Chinese tourists via the popularity of Korean culture, and the increase in foreigners entering the country to receive medical services, both tourism and medical care will be promising sectors in terms of development. While planning the development of these tourist industries, the matter of continuing to change the ROK economy to a growth model with a balance between domestic demand and exports is an immediate task.