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Posted : 2012-03-18 11:40
Updated : 2012-03-18 11:40

High oil prices to dent Korean economy

A recent surge in international crude prices and their high volatility are likely to make a dent in the economy of South Korea that relies entirely on imports for its oil needs, market sources said Sunday.

With oil prices soaring due to heightened geopolitical risks stemming from the international standoff over Iran's nuclear program, the ratio of Korea's oil imports bill to its gross domestic product (GDP) is expected to hit a record high this year, having an immense negative impact on Asia's fourth-largest economy and its stock market, they said.

According to the Korea Center for International Finance (KCIF) and global investment banks, Korea's oil import bill is predicted to reach 11.7 percent of its GDP, up from last year's 10.6 percent and 11 percent in 2008, when a global financial crisis erupted.

The KCIF said high international oil prices will likely lead to reduced corporate capital investment and consumer spending, which will in turn dampen economic growth.

"An excessive ratio of oil bills to GDP could atrophy spending in other sectors, having an adverse impact on the overall economy," said Oh Jeong-seok, a KCIF researcher. "Increased volatility in the oil market makes it hard to forecast oil prices, a negative factor for corporate managers and stock prices."

Surging crude prices are also feared to put a burden on South Korea's already high consumer prices, the KCIF said.

The annual increase in South Korea's consumer inflation slowed down in February, but consumer prices gathered steam, compared with the previous month.

The country's consumer price index rose 3.1 percent in February from a year earlier, slowing from a 3.4 percent gain in January. The index, however, gained 0.4 percent compared to a month ago.

International investment banks also expressed concern that a continued uptrend in oil prices could affect the South Korean economy and its stock market negatively.

Nomura of Japan said South Korea is hit harder by high international crude prices since the ratio of its oil import bill to GDP is greater than other countries.

Credit Suisse said the South Korean stock market is relatively vulnerable to global economic swings because its exports are highly sensitive to global economic conditions. (Yonhap)

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