Soaring Oil Price a Warning Signal for Korea’s Economy

High oil prices, high commodity prices and high interest rates could mire Korea’s economy in low growth. In that case, households already burdened with debts of W600 trillion (US$1=W937) could see a further reduction in real income, fewer jobs and increased interest payments. They would also put a heavy strain on macroeconomic management by the new government, which has been elected by a landslide on a pledge to revive the economy.
According to analysis by the Samsung Economic Research Institute, if the annual average price of oil rises 10 percent year-on-year, the economic growth rate will drop 0.35 points. Considering that the average import price of the Dubai crude was $68 per barrel last year, this year’s growth rate might drop more than 1 percentage point if the price hovers at the $90-100 range. The falling growth rate will result in fewer jobs.

The high oil price would also reduce domestic consumption in the U.S., the world’s economic growth engine, which in turn would adversely affect the upswing in Korea’s exports that has so far buttressed the country’s economy. The soaring oil price would also prompt a rise in commodity prices, which particularly affects low-income earners — and shake the foundation of president elect Lee Myung-bak’s pledge to cut the cost of living by 30 percent.

Chosun Ilbo