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BOK report warns against reliance on exports

Apr 22,2019
Steady global economic growth, often boosted by healthy demand in major economies, is no longer a guaranteed boon for trade, according to a report released by the country’s central bank Sunday.

The link between the growth rate in the world’s gross domestic product (GDP) and trade has been weakened since the 2007-08 financial crisis, found the Bank of Korea (BOK) in a report that called for less reliance on exports - especially on intermediary goods shipment to China.

The research highlighted the steep decline in the expansion rate of global trade, outpacing the slowdown in the global economy.

Global trade grew 7.7 percent between 2002 and 2007 and then dipped to 3.5 percent between 2012 and 2018.

At the same time, the world economy expanded 4.8 percent during the early period and moderated to 3.5 percent in the latter period.

“The correlation coefficient between the growth rates of GDP and trade has gone down after the financial recession,” the report said, “A research investigating the causal relationship between the two factors also indicates that the two are statistically independent.”

The central bank cited the weaker international division of labor and the larger share of the service industry - rather than manufacturing - as the reason for the global GDP’s scant influence on trade, and vice versa.

To better navigate the evolving economic structure, the research raised the need to reduce reliance on exports to China.

“Korea, an export-oriented economy, should mitigate its dependence on intermediate goods exports to China and foster a system where high-value and innovative products are fully manufactured,” it said.

While the BOK calls for the ditching of a conventional approach toward economic growth, Korea continues to face warning signs over the state of the economy.

The average revenue and operating profit for the first half of this year from the country’s top companies by revenue is expected to decline, according to survey results released by the Korea Economic Research Institute (KERI).

The research institute, under the business lobby Federation of Korean Industries, said Sunday that the average growth rate forecast by the companies for revenue was at negative 3.01 percent and for operating profit at negative 1.75 percent in the first half of this year.

Over one-third of companies expected revenue for the first half to decline, compared to 19.8 percent who forecast improvement. Results showed that 6 percent of companies expected revenue to drop by more than 20 percent. In terms of operating profit, 36.3 percent predicted a fall, while 21.8 percent projected a rise.

KERI’s survey, conducted through market tracker Mono Research, received responses from 151 of the country’s top 1,000 companies by revenue.

Over 60 percent of companies blamed the economic slowdown for the expected drop in operating profit.

BY PARK EUN-JEE, CHAE YUN-HWAN [park.eunjee@joongang.co.kr]