Crisis theory looming over Korean economy

Coming election may hamper countermeasures against eurozone crisis


The overall economy could face severe difficulties in the coming months due to a combination of uncertainties at home and abroad, according to projections by some local economists.

They forecast that the government would fall short of being able to effectively cope with the worsening debt crisis in Southern European countries, mainly because Korea has to cope with election season and a new president.

“For Korea, it would not be easy for policymakers to take countermeasures against the external factors such as through monetary easing amid political uncertainty from the upcoming presidential election,” he said, adding that it was likely for Spain to suffer a downgrade in its sovereignty rating, which could negatively affect the eurozone and the global economy. “But Korea may not be ready to cope with these issues.”

Initially, economists forecast a slow expansion of the global economy early in the year due to eurozone problems and sluggish conditions in other parts of the world, followed by accelerated growth toward the second half.

However, mounting uncertainties in European countries such as Greece and Spain, and slower-than-expected growth in the United States and China are causing many to reassess their management strategies.

Reflecting the skeptical predictions, local industries in such areas as automobiles, refining, steel and electronics are all preparing for tougher times.

Local carmakers such as Hyundai Motor and Kia Motors, which did relatively well in the first half thanks to the popularity of newer models, said a slowdown in growth in emerging markets such as China and India could require adjustments in growth plans for 2012.

Among refiners, companies such as GS Caltex Corp. said they are introducing early retirement programs in a bid to shave costs. The industry reported weak earnings in the first half as the so-called refining margin declined.

Local shipbuilders like Hyundai Heavy Industries and Samsung Heavy Industries are expecting lean business conditions as many European countries are holding back on placing new orders for ships. Such companies have been able to sell high value-added ships this year, but overall sales fell shy of expectations.

In the steel sector, POSCO said it plans to cut back on all unnecessary expenses and delay investment to ensure the company has adequate liquidity. It said efforts are underway to secure assets that can be readily converted into cash.

For electronics, solid demand for smartphones and tablet PCs have helped sales, but weaker-than-expected TV shipments have dampened growth expectations.

Overall, corporate insiders said efforts are underway to reduce outlays and costs to minimize losses, but stressed that if outstanding issues involving the eurozone and large economies are not resolved quickly, growth expectations for this year will have to be pushed down further. The International Monetary Fund recently cut its economic growth forecast for Korea, citing unfavorable global economic conditions.

By Kim Yon-se (kys@heraldcorp.com)