Korea's current account balance has deteriorated and prices have risen amid soaring oil prices. Exports and investments are also showing signs of slowing down. Local and foreign think-tanks have begun cutting their forecasts for Korea's economic growth this year from 5 percent to the 4 percent range.

Far from a temporary slowdown, indicators show that the U.S. economy, which began reeling in the fourth quarter of 2007 after being hit by the subprime mortgage crisis, is sinking into a deep mire.

The U.S. Institute of Supply Management said its survey of manufacturing activity in February fell to 48.3 percent from 50.7 percent in January. This figure is the lowest since April 2003 when the Iraq War began. A number below 50 percent signals declining activity.

UBS, a global investment bank, predicted that the world's financial firms will face at least US$600 billion in subprime mortgage losses -- three times as much as previous estimates. With middle-class consumption remaining sluggish because of the worsening financial crisis and falling housing prices, the prevailing view holds that the U.S. economic slowdown grow even worse.

U.S. flags adorn the facade of the New York Stock Exchange. /AP

The U.S. slump has also weakened the dollar. The greenback scraped a new low of $1.5275 per euro on the New York Foreign Exchange on Monday, the weakest level since the euro's debut in 1999. International investors rushed to sell U.S. dollars and buy oil, a safe-haven asset. At the New York Mercantile Exchange (NYMEX) on Monday, the price of the West Texas Intermediate crude for April delivery hit a record high of $103.95 per barrel. In addition, the prices of gold, corn, rice, soybeans and copper are also sky high, prompting worldwide fears of serious inflation.

According to a report on industrial activities in January released by the National Statistical Office on Tuesday, facility investment dwindled by 9.6 percent from the previous month, the first fall in four months, partly due to sluggish investment in semiconductor manufacturing equipment.

The so-called "MB effect" -- the prediction that corporate investment would grow after President Lee Myung-bak's inauguration -- has apparently been losing some luster amid the U.S. slowdown. The index of leading economic indicators dropped 0.4 percent in January, the first decline in 22 months since March 2006. The consumption growth rate, which has remained below zero for three consecutive months, rose 2.5 percent in January. But it is unclear whether the upward trend will continue, since consumption rose thanks to a business boom during the Lunar New Year holidays and a rollout of new car models.

A warning light has already begun to flash for the country's exports. The current account recorded a second consecutive monthly shortfall with a deficit of $2.6 billion in January, a result of soaring prices of imports, including crude oil.

Tentative statistics show that exports also recorded a deficit of about $800 million in February, with exports to the U.S. falling nearly 20 percent year-on-year due to the U.S. slowdown. In particular, shipments of semiconductors and cars, key export items, plunged by around 39-51 percent year-on-year.

With investments and exports moribund, economic think-tanks are lowering their forecasts for Korea's economic growth rate for 2008. The Samsung Economic Research Institute cut its growth forecast by 0.3 percentage points to 4.7 percent on Sunday. Lehman Brothers, a global investment bank, cut its forecast from 4.6 percent to 4.3 percent. Fitch Ratings, a British ratings agency, cut its forecast from 4.9 percent to 4.1 percent, and UBS cut its forecast from 4.1 percent to 3.6 percent.

Hong Sun-young, a managing director at SERI, said, "The U.S. economic slowdown may lead to sluggish exports, rising prices and worsening purchasing power in Korea. This year our economy's survival will depend on how we cope with the external environment," including soaring oil prices and the weakening dollar.

(englishnews@chosun.com )