Top Korean economic policymakers heaved a sigh of relief at the news that a pro-bailout Greek party, which won the largest number of congressional seats in the Sunday general elections, would soon take steps to form a coalition government. The news was undoubtedly a ray of sunshine for the Korean government, who had been bracing for a potentially devastating impact from the Greek elections on the Korean economy.
With the chances now being higher that Greece would remain in the eurozone, the first vice minister of finance said that the worst appeared to be over for the fiscal crisis-ridden European Union, noting that favorable responses were coming in from the global financial markets. Still, the Korean government could hardly afford to lower its guard against a financial upheaval of European origin, given that Spain and some other European countries remained fiscally unstable.
Few would say the outcome of the Greek elections improved the grim outlook Korea had had for its economy. What it actually did was nothing but avoid pushing the Korean economy into a deeper slump. As such, it should give no pause to the Korean government that is in the process of revising its economic management plan for the second half of this year.
The Korean government started the 2012 fiscal year with the low growth outlook of 3.7 percent. But it did not take long before international financial institutions and others began to slash this growth outlook. They did so as the global economic conditions rapidly deteriorated as a result of the worsening debt problems in Greece, Spain and other European countries.
The International Monetary Fund, which forecast two months ago that Korea’s growth would be 3.5 percent this year, lowered the outlook to 3.25 percent earlier this month. Moody’s Analytics, which was even more pessimistic, said recently that growth could slow to 3 percent. Their revisions apparently reflected the worsening conditions for the global economy ― a setback for Korea’s plan to generate growth by promoting exports.
At the outset of this year, Korea put its 2012 projection of exports at $595 billion based on a forecast of 4 percent growth in the world economy. But the IMF and the Organization for Economic Cooperation and Development now believe global growth will not surpass 3.5 percent, leading to a downward revision of Korea’s export target.
During the first five months of this year, Korean exports grew by a miniscule margin from last year, 0.6 percent, to $228 billion. This small growth may be wiped out in the months ahead, given a new trend in monthly exports ― a decline for the third consecutive month in May.
Of course, the culprit is the European debt crisis. Korean exports to Europe during the first five months plunged 15.2 percent from a year ago. Korean shipments to China, which had risen in leaps and bounds, were hurt by Europe’s deepening crisis. They dropped 0.2 percent.
Declining exports are a serious setback for President Lee Myung-bak’s administration, which has been seeking to generate growth by expanding exports. They should be all the more painful to the Lee administration, given that one of its few vaunted achievements, reaching $1 trillion in trade last year, was being chipped away. When exports surpassed that mark for the first time, a buoyed Lee administration was already talking about $2 trillion in trade, with more than half from exports, as a new goal to be attained by 2020.
Now it would be unrealistic for Korea to hold onto this year’s target of $595 billion in exports. Lee was right to say his administration would have to revise it if individual corporations found it impossible to attain their own targets.
But the Lee administration cannot simply wait out the European crisis while doing nothing to build up the momentum for the future. It will not be enough for large Korean corporations to strengthen their presence in mature foreign markets.
Instead, Korea will have to foster small and medium-sized exporters as strong global competitors and explore new markets in Latin America and Africa. It needs to keep up the efforts to attain the goal of $2 trillion in trade by 2020 as planned.
