By Weakening Demand in Emerging Economies
The Korea International Trade Association (KITA) said in its report on April 11 that U.S. interest rate hikes are likely to have an adverse impact on South Korean exporters. “The interest rate adjustment is forecast to lead to a decline in demand in emerging economies to affect exports from South Korea,” it said, adding, “At the same time, the strong dollar is likely to result in an increase in import cost and a decline in exporters’ profitability.”
“Back in 2013, the ratio of exports from South Korea to the 23 emerging economies including Taiwan and Brazil to its total exports was 48.1 percent, and then the ratio fell to 44.5 percent in 2017 after interest rate hikes in the United States,” it explained, continuing, “The same is likely to be repeated soon and, in fact, the ratio already fell 1.5 percentage points from December last year to February.”
This year, emerging economies’ growth rate is estimated to fall from 6.5 percent to 4.8 percent. The central bank of Brazil raised its key rate seven times last year. Under the circumstances, South Korean exporters’ liquidity is deteriorating fast. The lending rate applied to non-large South Korean companies rose 0.8 percentage point from May last year to February whereas it rose 0.5 percentage point from July 2016 to October 2018, when U.S. interest rates rose.
The profitability of South Korean exporters is likely to be affected by rising raw material import costs as well. The won-dollar exchange rate has never dipped below 1,200 won per U.S. dollar since last month. Unprocessed products and intermediate goods account for 73 percent of South Korea’s total imports and the U.S. dollar accounts for no less than 78 percent of its import payments.