The Biggest Concern in 2018 Trade Industry is Exchange Rate
- Surveyed 514 companies, 48.4 % said so, 67.9% are already
experiencing losses from exchange rates -
-KITA’s report found export companies' exchange risk management
level is insufficient and they are concerned about worsening profitability -
According to a survey, it is expected
that exports will continue to be on upward trend next year and the biggest
influence on the business environment for exporters in 2018 will be exchange
rate fluctuations. As a result of the recent strong won trend, 67.9 percent of
the responding firms experienced foreign exchange losses, but more than half of
them (58.4 percent) are not managing foreign exchange risk.
The Institute for International Trade
of the Korea International Trade Association (President, Shin Seung-kwan)
surveyed 514 companies with annual exports of more than 500,000 US dollars.
According to the report titled “A Survey on the Business Environment for
Exporters in 2018”, 91.4 percent of respondents expected exports to grow next
year and particularly, 68.2 percent of them forecast exports to grow by 0-10
percent. As a result, export growth this year will continue next year, but the
growth rate will be slowed to less than one digit.
Exports of precision medical and
optical equipment, semiconductors and machinery are forecast to show favorable
results in 2018, while exporters of mobile phones, wireless communication
device parts, electronics and agricultural and fisheries products are expected
to relatively decline.
48.4 percent of the respondents said
that the exchange rate fluctuation would be the most critical factor affecting
the management environment for exporting companies in 2018, followed by the
intensification of global competition (25.1%) and stronger trade protectionism
from the United States and China (16.0%). This seems to reflect the concerns of
exporters about the negative impact of the decline in the exchange rate on
export profitability. In particular, concerns over foreign exchange risk were
high in agricultural and marine products (70.2%), textiles and leather goods
(53.7%) and machinery (52.0%).
The difficulties experienced by exporters
due to exchange rate fluctuations are also confirmed by specific figures. The
respondents' projected average exchange rate for the next year was 1,090 won
per dollar. In addition, 67.9 percent of participants answered that they were
currently experiencing foreign exchange losses on more than one settlement
currency, including the US dollar (as of December 5, 1,088.3 won/dollar).
* Won /
dollar exchange rate trend (Trading Base Exchange rate): 1,121(`17.11.1) → 1,119(11.15) → 1,088(12.5) → 1,092(12.14)
appears that the majority of companies are unlikely to be able to make up for
the losses resulted from falling exchange rates by raising export unit prices.
In response to the question “what % p increase can be made in export unit
prices against a 10 % decline in the exchange rate?”, 77.4 percent of the respondents said that they could only reflect less than 5% p (less than half). In
particular, 27.3 percent of the participating companies said that they would
not be able to reflect it at all. As global competition is more intensified and
raising export unit prices is becoming more difficult, most companies seem to
be unable to make up for even half of the losses resulted from the decline in
foreign exchange rate.
In this situation, it was found that
most of the companies do not have sufficient control over the foreign exchange
rate risk. 58.4 percent of the respondents said that they did not manage the
foreign exchange risk at all, and 75.9 percent of the participants answered
that the exchange rate hedging ratio is less than 20 percent. Particularly,
only 8.6 percent of the respondents said that they had foreign exchange experts
in the company.
A researcher Kim Kun-woo at the Institute for International Trade said “Despite the recent U.S. Federal Reserve's decision to raise
interest rates, the won-dollar exchange rates are showing a downward trend.” He stressed “In
order to be prepared for the situation that the strong won trend continues for
a long time, it is required to establish a long-term exchange rate management
strategy. At the same time, businesses need to foster their own exchange rate
experts and strengthen the related consultation.”