21 October 2008 08:40 [Source: ICIS news]
SINGAPORE (ICIS news)--Major petrochemicals producer South Korea needs to pump in more money to spur domestic growth as the battered won combined with falling exports threatens to hobble Asia’s third largest economy, economists said on Tuesday.
The currency’s 30% fall since January would weigh heavily on cracker production as feedstock naphtha, which was priced in US dollars, would cost relatively more compared with domestic won-denominated chemical sales, cracker operators said.
Despite a weaker currency Korean exports are not expected to rally when major trading partners such as the
The country’s naphtha exports in September slumped 28% as
“Growth is going to slow in Korean exports. The third quarter was up 25% year on year but they cannot sustain something like that if the world economy is going the direction we see it to be,” said David Cohen, chief economist at Action Economics.
The won’s decline in value against the US dollar had compounded
“Some SMEs were suffering from hedging losses as much as their total revenue,” he added.
At current rates, $1 bought won (W) 1,320.
“The main problem with
“The third quarter will still be fairly resilient but in the fourth quarter, we may see a minor collapse. Recession may be on the cards in 2009,” he said.
The second half of 2008 may only see growth averaging between 2.5-2.8%, with growth falling to just about 2% in the fourth quarter, Soh added.
On Sunday, the government announced a $130bn financial rescue package - including a $100bn guarantee on banks’ offshore debts and $30bn to be made available to banks - joining in the global efforts to stabilise the financial markets.
“The financial package, the most it can do is to ease the liquidity issue in
The bulk of the country’s exports consisted of capital goods such as machinery and equipment, which thrived during times of economic prosperity but would be dismal during difficult periods, economists said.
“The trend so far is quite positive for Korean exports. It remains supportive for their economy but clearly they are still nervous for potential drag on their exports,” said Cohen.
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Leon Toh, Steve Tan, Helen Yan and Hong Chou Hui contributed to this story
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