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Korea posted a US$860 million trade deficit in December of last year, the first deficit in four years and nine months (US$1=W937). Exports in December rose 15.5 percent from a year ago to $33.25 billion, but the nation posted a trade deficit since imports rose 24 percent over the same period.
The main reason for the deficit is soaring crude prices. It costs Korea an average $86 to import a barrel of crude. That's up 52 percent in just one year, from $56.5 in December 2006. Monthly spending on oil imports soared by almost $1.9 billion, from $4.69 billion in December 2006 to $6.56 billion last month. In 2007 Korea imported $60 billion worth of crude oil, up $4.1 billion from $55.87 billion in 2006.
In the new year the price of West Texas Intermediate (WTI) on the New York Mercantile Exchange touched a record $100 a barrel during trading. Signs are strong that crude prices will continue to soar this year. Prices of raw materials such as corn, soy beans, wheat and other grains, as well as iron and copper are also continuing to soar. And leading economies are slowing down due to the financial jitters caused by the U.S. subprime mortgage crisis.
When raw material prices soar and advanced economies slow down, Korea's exports face obstacles. In other words, the December trade deficit may not be a temporary glitch. Domestic consumer prices are also becoming unstable. Consumer prices in December rose 3.6 percent from a year ago, surpassing the Bank of Korea's target parameters of 2.5 percent to 3.5 percent. Consumer prices may rise in the 4 percent range this year.
For the government of president-elect Lee Myung-bak, this means a huge burden from the onset. It will be very difficult for him to keep his campaign pledge of achieving 7 percent economic growth and creating 600,000 jobs. The presidential Transition Committee is trying to lower this year's GDP growth target to 6 percent, but even that seems tough to meet.
At a meeting with the heads of economic think-tanks on Wednesday, the president-elect said he would not resort to excessive measures to achieve 7 percent growth. Yet he added that we cannot afford to give up by blaming external conditions. The new government must not be fixated on numbers, but should find out just what it must do in order to boost Korea's economic growth potential.
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