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Low oil prices will give South Korea a timely boost

Thursday, February 5, 2015

Subject

Effects of low oil prices on South Korea.

Significance

South Korea is the world's fifth-largest oil importer, just after Germany, and imports virtually all the oil it uses. The dramatic fall in oil prices to around 50 dollars per barrel will give a timely boost to the country's economy, which weakened in the final quarter of 2014 with growth of just 0.4%, the slowest in two years. Annual growth in 2014 of 3.3% improved upon 2013's 3.0%, but fell short of the finance ministry's 3.8% forecast.

Impacts

  • Improved economic performance will reduce dependence on the chaebol and strengthen the government's hand in structural reform efforts.
  • A sustained period of low oil prices may lead to monetary policy remaining overly accommodative for too long.
  • Export-dependent South Korea still relies on developed-world demand -- something low oil prices may help to revive.
  • With the won weak, lower production costs will allow exporters to cut prices to compete overseas.
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