KITA News and Reports
  • US Interest Rate Lifts Bring Concerns over Export Decline to Emerging Market
    2018-08-30

    US Interest Rate Lifts Bring Concerns over Export Decline to Emerging Market

     

    -  Possibility of US interest rate hikes in the first half of next year Need to diversify export markets -

     

    It has been pointed out that the US interest rate hikes could have an adverse effect on the Korean companies that heavily depend on exports to emerging countries such as Brazil and Turkey.

     

    According to the ‘Possibility of US Interest Rate Rise and Its Impact on the Korean Economy and Exports’ issued by the Korea International Trade Association (President, Shin Seung-kwan) on August 28, the United States is likely to raise interest rates two times in the second half of this year and continue to increase the rates in the first half of next year*. When those take place, it is expected that the competitiveness of Korea’s exports could benefit to some extent as the KRW depreciates, but the emerging economies, which account for 58%** of Korea’s total exports, will be stagnant and it may bring a negative impact on Korea.

     

    * In the second quarter of 2018, the US GDP growth rate was 4.1%, the unemployment rate in July, 2018, was 3.9%, the lowest since the financial crisis, and the private consumption expenditure (PCE) growth in June, 2018, was 1.9%

     

    ** Export proportion to emerging countries (%): 57.8(2015) 57.3(2016) 57.3(2017) 58.0(January~June, 2018)

     

    The report said, "The interest rates of the Korea and the United States have been reversed, but the outflow of foreign capital from Korea was limited. Also, emerging economies were not directly affected thanks to the robust global economy and trade boom and high raw material prices compared to the previous year.” However, the report pointed out, "If the US interest rate continues to rise, financial market instability in certain emerging economies can be a burden on Korea’s exports as it can be transferred to other vulnerable countries with vulnerable financial system, and it brings negative impact on the real economy, including economic slowdown and deflation.”

     

    In particular, the report stated, "In some emerging economies, such as Brazil, Turkey, South Africa and Argentina, their economies could slow down due to outflow of foreign capital.” 

    The report also stressed, "Korean export companies need to closely monitor the changes in both domestic and foreign markets that may arise from the US interest rate hikes, and work on countermeasures for each scenario."

     

    Jung Gui-il, a researcher at the Korea International Trade Association, said, “Regarding the emerging export markets with high current account deficits and high debt-to-GDP ratio, Korea needs to be prepared for order cancellation, and reduction, and inventory disposal while lowering export risks by diversify the market.”

    < Korea’s Export Trends to 4 Vulnerable Countries from January to June in 2018>

    Index

    Brazil

    Turkey

    South Africa

    Argentina

     

    Export

    Export Growth Rate

    -5.3

    22.7

    -1.0

    -5.5

     

    Export Volume($ 100 million)

    26.6

    34.8

    5.0

    3.8

     

    Export Decline Items

    Wireless communication device

     

    Vehicles

    Prime mover

    Flat panel display

    -

    Vehicles

    Automotive Parts

    Wireless communication device

    Vehicles

    Wireless communication device

     

     

     

     

     

     

     

    <Source: Korea International Trade Association Korea Trade Statistics>

    List
    Prev
    KITA to Establish ‘Startup Global Center’ in COEX
    Next
    KITA to Participate in ‘China International Import Expo’ with 200 Companies
KITA
Family Site