Korea: High oil prices could wipe out 10% of GNI: Report forecasts average oil import price to climb to $31 per barrel next year

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Korea: High oil prices could wipe out 10% of GNI: Report forecasts average oil import price to climb to $31 per barrel next year

Economic think tanks at home and abroad are spouting dismal forecasts about the devastating impact of sky-high oil prices on the Korean economy.

The Hyundai Research Institute said in a report that the high crude-oil prices, if maintained at over $27 per barrel on average this year, will eat into the nation's gross national income (GNI) by about 10 percent and the current account balance by $10.5 billion.

Next year's annual average of international oil prices is again expected to climb to $31, knocking 4 percent off the GNI and $15 billion off the current account balance, said the Hyundai report.

U.S. investment information weekly Barron's Online also warned that a $10 rise in global crude prices will put Korean won in danger of a free fall and create inflationary jitters.

Snowballing increases in energy import costs will greatly destabilize the won and raise this year's consumer price gains to 3.2 percent, far above the government's target of 2.6 percent, the U.S. online weekly said. It predicted the oil price will rise from this year's annual average of $29.5 to $34.5 next year.

MoneyToday analyst Kang Sang-kyu cautioned that the Korean economy could be heading for a hard landing and inflationary spirals in the face of "unexpected blows" from the surging oil prices.

Citing analyses by Goldman Sach & Co., CSFB and other international agencies, Kang said that the annual average oil prices will stay at the $32 level next year. "Further rise to $40 per barrel can not be ruled out this winter," Kang said, forecasting that the oil prices will begin to stabilize only after the fourth quarter of 2001.

Earlier last week, the LG Economic Research Institute said that a crude price of $30 by the year's end will cut this year's current account surplus by about $2 billion. Japan's Nomura Securities warned that the current account balance will move into the red in less than a year and trigger stagflation in Korea.

According to the Hyundai report, meanwhile, the soaring oil prices will raise next year's consumer price increases to 3.5 percent, on top of a near 3 percent rise this year. Among energy-sensitive sectors, automobile, textile, petrochemicals and oil-refining firms will likely be hit particularly hard by the high oil prices. Car sales, for instance, are expected to fall by 50,000 units this year and 250,000 units next year, the report said.

Updated: 09/15/2000

http://www.koreaherald.co.kr/news/2000/09/__05/20000915_0541.htm

-- Carl Jenkins (Somewherepress@aol.com), September 15, 2000


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