Korea Hit Hard by Shockwaves from China

Posted by: Ihlwan Moon on February 4, 2009

Economic data released by South Korea in recent days underline how a recession in China could bring misery for the rest of Asia. Korea’s exports suffered the worst monthly plunge on record in January, while the International Monetary Fund warned this week that the Korean economy would contract 4% in 2009, against a growth of 2.5% last year. The biggest reason: demand collapses in the world, particularly in China, which accounts for 22% of Korea’s overall exports (this portion jumps to some 27% when shipments to Hong Kong are added).

To get the feel, just look at what happened in the last three months of 2008. During that quarter, China’s GDP grew 6.8%, a sharp fall from 11.2% a year earlier. The impact was dramatic in Korea where GDP contracted 3.4% in the three months from a year earlier, against a gain of 3.8% in the third quarter. Korea’s exports to China sank 32.2% in January, 35.4% in December and 33.3% in November.

Most economists in Seoul don’t agree with the IMF on the extent of GDP contraction for Korea. While Korea is certainly vulnerable to outside shocks, given that its exports represent well over 40% of its GDP, it is hard to understand why the IMF adjusted down its projection in such a drastic manner in a span of little more than two months. As late as November, the IMF forecast the Korean economy would grow 2% in 2009. (The Seoul government still projects a 2009 growth of 2%, while many economists predict a contraction of around 2%).

Yet no one is questioning China will have enormous influence over the Korean economy. Li Wanyong, economist at Hyundai Research Institute, a private think-tank, figures if China’s GDP growth slows down to 7% this year, that will probably lower Korea’s exports to China by 13% or by $12.1 billion. The export fall will also cause a production cut of $34.9 billion and a reduction of 135,000 jobs, Li adds.

Reader Comments

More from emerging markets!

February 6, 2009 8:15 PM

Korean export is hit more from Eastern Europe and other emerging markets in average about 50%! China looks the overall average drops!

Bob

February 7, 2009 12:32 AM

Taiwan and Japan also share the same fate as Korea. But China did not cost their problems, the collapse of US & EU consumption did, especially in consumer electronics. They all provide parts & components, machinery, and investment to China in these export settors. All three must now try to hitch their growth prospects to China's domestic market now.

Aeonrover

February 7, 2009 5:16 AM

I'm so sorry to hear that ,but you must take your confidence in China ,otherwise the result is hard to imagine.

MotherIndia

February 9, 2009 7:33 AM

China is not the only country that matter in Asia. There is another big country in Asia call India. India is better than China practically in all aspects. After all India has the world largest democracy.

pathetic

March 7, 2009 11:58 AM


MotherIndia
February 9, 2009 07:33 AM
China is not the only country that matter in Asia. There is another big country in Asia call India. India is better than China practically in all aspects. After all India has the world largest democracy.
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what does india have to do with an article about korea and china????

keep your idiocy to yourself cuz no one care.

ignorant

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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