Economic Indicators Show Dim Outlook

All of the financial indicators at home and abroad are signaling slow times ahead. These valued forecasts of economic conditions around the world also show the current status of the Korean economy.

The current account is suffering a record high deficit, the highest since the financial crisis in 1997. Both the coincident composite index and the leading composite index, which measures the current phase of the business cycle, continue to fall.

Actual business in the industrial complexes of small- and mid-sized companies or in traditional markets is much worse than the statistics.

Despite the early end to the war in Iraq, the prospect of the Korean economy is not clear due to the persistent threat from the North and the negative impact of SARS, which is still hard to gauge.

“The recent economic recession has been caused not only due to the business cycle or overseas factors,” said Kim Jong-seok, a professor of economy at Hongik University. “The reason may be a structural problem with the economy such as the nation’s dwindling growth potential.” “It is time to reconsider those policies that put pressure on companies,” he pointed out.

The current account deficit for March reached 1.19 billion dollars, the largest monthly amount since the financial crisis. The main culprit for this is the rise in oil prices due to the war in Iraq. The price of Dubai crude, which hovered around 25 dollars last year, jumped to some 30 dollars this year because of the war. The nation’s crude imports amount to 800 million barrels. It is only natural for the nation to see the annual deficit of 4 billion dollars.

“The current account is likely to see a surplus from May because oil prices will have fallen to 25 dollars per barrel and the service account is improving,” said Lee In-kyu at the Bank of Korea.

However, some argue that there are other negative factors affecting the nation’s current account including SARS and the North Korean nuclear threat. If the Asian economy’s recession protracts due to SARS, reduced exports will inevitably lead to aggravated current account.

The service account, one of the main culprits for the current account deficit, suffered only a 500 million dollar loss in March, narrowing from 890 million dollars a month ago. The travel account for March lost 10 million dollars to 310 million dollars compared with a month ago as the number of those traveling abroad sharply decreased due to the spread of SARS.

The National Statistics Office (NSO) announced that in March, increasing trends in production slowed, consumption was sluggish, though facility investment has recovered to some extent.

The production index of the heavy and chemical industries increased 7.6% as compared to the same period last year while that of the apparel and other light industries decreased 6.0%, indicating that small- and mid-sized companies are having more trouble than large conglomerates.

In particular, the production capacity index, which measures the maximum production amount of the economy, has been declining, suggesting that structural countermeasures are required. Indicators in March dived to 2.3 from the average 3.2 last year and 2.4 a month ago.

With the negative coincident composite index and leading composite index figures, economic slowdown seems inevitable. The only reassuring sign is that facility investment rose 0.2% as compared to the same period last year.

Major department stores forecast that the growth rate for sales will be negative compared with that of last year due to the relatively small number of customers during the spring discount period.

Sales in five home shopping companies declined in the first quarter of this year compared with that of the fourth quarter last year. It is the first time that sales have reduced.

The situation in traditional markets is even worse. Merchants are extremely worried. “There used to be a lot of orders for gym suits in April, but we only had two orders,” said Park Kun-jae, a merchant at Dongdaemoon market in Seoul. “We dropped prices, but it was no use.”

Factories are not exempt from falling demand. “More than a third of demand has decreased. We are also having difficulty receiving money,” said Lee Soon-ee, who runs a factory at Si-wha industrial complex in Ansan. “We had to lay off two employees out of our ten.”