KITA News and Reports
  • The Biggest Concern in 2018 Trade Industry is Exchange Rate Fluctuation
    2017-12-20

    The Biggest Concern in 2018 Trade Industry is Exchange Rate Fluctuation

     

    - 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)

     

     

     

     It 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.

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