"Import Companies Forecast 9% Rise in KRW-USD Exchange Rate in First Half of Year, Need for Forex Market Stabilization"

Joint Survey of 1,210 Import Companies by KERI and Korea Importers Association

[Asia Economy Reporter Ki-min Lee] Due to the impact of the COVID-19 pandemic, import companies have forecasted that the KRW-USD exchange rate will rise by about 9% in the first half of the year compared to the beginning of the year. In this case, most import companies may incur losses, raising calls for stabilization of the foreign exchange market.

The Federation of Korean Industries (FKI), together with the Korea Importers Association, conducted a survey on 1,210 member companies of the Korea Importers Association regarding "the impact of sudden exchange rate fluctuations on import companies." On the 9th, they announced that import companies expected the KRW-USD exchange rate in the first half of this year to reach 1,266 won, a 9.3% increase from 1,158 won at the beginning of the year.

According to the survey, the KRW-USD exchange rate forecasted by import companies for the first half of this year was 1,266 won, which is 11.2% higher than the forecast (1,138 won) made at the end of last year when business plans were established. Import companies also projected the annual exchange rate for this year to be 1,215 won, 6.8% higher than the forecast made at the time of business plan establishment.

Import companies anticipated that if the KRW-USD exchange rate rises by 10% compared to the beginning of the year, sales would decline by about 6%, and operating profit would worsen by about 10%. The largest proportion of companies expected sales and operating profit declines in the range of 5-10%, accounting for 38.2% and 44.1%, respectively.

The breakeven KRW-USD exchange rate that companies consider is 1,163 won, which is 103 won lower than the companies' first-half forecast of 1,266 won and 52 won lower than the annual forecast of 1,215 won.

By industry, the breakeven exchange rates were surveyed as follows: metal products (1,263 won), chemical products (1,165 won), textile products (1,150 won), machinery (1,147 won), electrical and electronics (1,145 won), and minerals (1,138 won). If the KRW-USD exchange rate reaches 1,266 won in the first half, virtually all import sectors are expected to incur losses.

Regarding exchange rate fluctuations, companies are responding in the following order: cost reduction measures such as expense cuts (40%), adjustment of import unit prices and volumes (38.2%), expansion of investment in foreign exchange hedging products (14.5%), and diversification of import sources (7.3%).

Regarding necessary policy tasks related to the recent exchange rate rise, the following were suggested: measures to mitigate sudden fluctuations in the foreign exchange market (44.1%), signing currency swap agreements with major countries such as Japan (32.2%), expansion of import financing and guarantee support (16.9%), and establishment of import infrastructure such as marketing support (6.8%).

Kim Bong-man, Director of International Cooperation at FKI, said, "As the global COVID-19 pandemic has destabilized international financial markets, our foreign exchange market has also become highly volatile, causing difficulties for import companies. Additional safety measures are needed to prepare for further shocks." He added, "We must sign multiple currency swap agreements with major countries such as Japan to dispel anxiety in the foreign exchange market as much as possible."

Cho Jung-hyun, Director of International Cooperation at the Korea Importers Association, said, "The outbreak of COVID-19 has disrupted global trade, threatening Korea's exports, and the sharp rise in exchange rates has led to increased prices for imported intermediate goods necessary for Korean exports. The rise in prices of industrial intermediate goods ultimately reduces the price competitiveness of Korean exports. Therefore, instead of reactive exchange rate measures, it is necessary to establish a system with the government and financial institutions that can prepare continuously."

This content was produced with the assistance of AI translation services.