The recent plunge in global oil prices will have a positive impact on the local economy and help boost South Korea's exports, the finance minister said Wednesday, dismissing concerns about deflation and further weakening of demand.
"There are various analyses about the impact of a cut in oil prices, but it is clearly a huge opportunity for our economy," Choi Kyung-hwan said at an economy-related ministers' meeting in Seoul.
"Still, we must gather and utilize the wisdom of all government ministries to revitalize the economy by actively using this chance to boost household income and domestic spending," he said, according to the Ministry of Strategy and Finance.
While cheaper oil would normally be a boon for South Korea which relies heavily on energy imports, it comes with worries of deflation as the country tries to revive spending after a tragic ferry sinking in April hit domestic demand. The government has revised down its economic growth outlook for this year, and the central bank is expected to bring down its forecast for growth and the inflation target at its monetary policy meeting next week.
Choi's comments followed a special joint report from five state-run think tanks, including the Korea Development Institute and the Korea Institute for Industrial Economics and Trade, which forecast the annual average price of Dubai crude oil to fall to US$63 per barrel this year, down 34.5 percent from $97 in 2014.
The report said South Korea's economic growth and income would rise by an additional 0.2 percentage point and 0.3 percentage point, respectively, every time global oil prices drop by 10 percent.
The price of Dubai crude, which accounts for 86 percent of South Korea's overall oil imports, has nearly halved from the 2014 average of $97, standing at $48.08 per barrel as of Wednesday, according to the Korea National Oil Corp.
Choi told the meeting the country's gross national income will likely increase by an additional 30 trillion won ($27.25 billion) if global oil prices remain at around $63 per barrel throughout the year.
The country will also save up to $30 billion in oil imports, he said. In 2014, energy imports accounted for nearly 46 percent of South Korea's total imports.
The report, also spotlighting the positive side of cheaper oil, said a 10-percent drop in oil prices would reduce the country's production costs by 0.67 percent, with those of the manufacturing sector expected to drop 1.04 percent.
Such cost reduction, especially in the manufacturing industry, would be almost twice as big as the benefits for competitors in China and Japan, enhancing the price competitiveness of South Korean products in the global market, the report claimed.
The report predicted outbound shipments by South Korea's manufacturing sector would increase by 0.55 percent on each 10-percent reduction in global oil prices.
"The government will intensify its efforts to make sure the drop in oil prices is reflected in consumer prices in a timely manner while also working to revamp the domestic market by boosting consumer spending and investment," Choi said. (Yonhap)
