NABO Economic Trends & Issues (No. 71)
I. Economic Trends
The Korean economy has recently been maintaining a steady increase in exports, but the domestic economy exhibits signs of a slowdown such as through investment contraction and weaker employment. Although agricultural and livestock product prices have increased due to the summer heatwave, consumer prices exhibited a low increase rate thanks to the temporary discount on electricity rates. The extended US-China trade dispute is causing the dollar to maintain its strong position, while deteriorating domestic economic indicators and expanded external uncertainty have led treasury bond (3-year-maturity) yields to decrease for two consecutive months.
Ⅱ. Analysis of the Trends and Transformation of Korean Overseas Direct Investments
Offshore direct investments by Korean companies have been steadily increasing since relevant regulations were relaxed in the mid-1990s. Starting in 2007, Korean offshore investment volume has far exceeded that of foreign direct investments in Korea. Since the global financial crisis, the services sector has become more significant in foreign direct investments, and horizontal M&As are increasing at a rapid pace. In addition, corporate M&A investments to secure new drivers of growth and strengthen global competitiveness are increasing mainly in the IT sector as well as in the retail and wholesale businesses. The growth of horizontal investments to secure new technology, enter regional markets and pioneer new markets may weaken the positive relations between overseas direct investments and employment, investment and exports from the Korean market. Therefore, support for reshoring manufacturing firms needs to be further reinforced while measures need to be developed so that service-related investments from advanced economies leads to enhanced productivity in the Korean services sector.
Ⅲ. Analysis of the Impact of Crude Oil Price Hikes on Korean Market Prices
International oil prices from 2018 to 2019 are estimated to be around 70 US dollars per barrel. Although factors such as the demand for crude oil have increased amid the continued global economic growth trend in tandem with concerns about a supply shortage from politically unstable countries, weakened up-stream investments and reduced crude oil inventories are expected to add upward pressure on oil prices; other factors including the increase in unconventional crude oil production such as US shale oil, OPEC’s production increase and concerns about an economic slump in emerging markets are expected to limit any potential hikes in oil prices. Empirical analysis of the impact of international oil price variation on Korean market prices exhibited a meaningful correlation between international oil price hikes and Korean import prices, producer prices and consumer prices over 15 months. In particular, petroleum-related products, transportation, housing, waterworks, electricity and fuel are significantly affected by oil price shocks, with the degree of impact in this order.