The recent plunge in global oil prices is increasing uncertainties in the global economy. There are both positive and negative aspects of the rapid drop in oil prices, and there are conflicting forecasts about their future movement. What seems to be certain, however, is that oil prices will remain low for a long time.
The tumbling oil prices are already hurting oil-exporting countries like Russia and Venezuela and invoking a fear of deflation in Europe and elsewhere. The fall of the Russian ruble and the possibility of Greece leaving the eurozone are also unnerving international financial markets. We should remain watchful.
Overall, low oil prices are regarded as a boon for the Korean economy because it relies on imports for most of its energy needs. Paying less for oil will improve the nation’s terms of trade, boost the current account surplus, reduce corporate production costs, increase disposable income and raise the growth rate.
A joint report by the nation’s top five state-run think tanks predicted that 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 dropped 10 percent.
There may also be downsides, though. Low oil prices will add to the fears of deflation, as the Korean economy is already witnessing low growth and low inflation.
Low oil prices may also cause a slowdown of the global economy, especially in oil-producing countries like Russia and in the Middle East. This could sap Korea’s exports and damage some business sectors ― like construction in the Middle East.
The government and businesses must work out countermeasures, including implementation of timely restructuring of the sectors that could be affected by low oil prices ― like petrochemicals, shipbuilding and maritime transportation.
The most important thing is to maximize the effects of the fall in global oil prices by channeling the energy cost savings into corporate investment and household income.
Officials said Korea’s gross national income would likely increase by an additional 30 trillion won if global oil prices remained at around $63 per barrel throughout the year.
This should provide the Korean economy with a golden opportunity to boost corporate investment, consumer spending and job creation.
