After US Interest Rate Hike Fallout... "Emerging Markets' Export Share ↓, Export Profitability Deteriorates"

"Urgent Need for Measures Such as Proactive Corporate Loan Easing"

[Image source=Yonhap News]

[Asia Economy Reporter Jin-ho Kim] An analysis has been raised that the aftermath of the US base interest rate hike will have a significant adverse effect on the Korean economy. It is pointed out that urgent measures such as preemptive corporate loan easing should be prepared in anticipation of the US big step (a 0.5 percentage point increase at once) next month.

According to the report "The Impact of US Interest Rate Hikes on Our Exports" released on the 11th by the Korea International Trade Association's International Trade and Commerce Research Institute, the full-scale US interest rate hike is expected to slow down the economies and import demand of emerging countries, negatively affecting Korea's exports to emerging countries.

The report stated that the export share to emerging countries, which reached a maximum of 48.1% in 2013, decreased by 3.6 percentage points to 44.5% in 2017 after the US interest rate hike in 2015, and also decreased by 1.5 percentage points in February this year compared to December last year, ahead of the US interest rate hike.

This is analyzed to be because the US interest rate hike led to capital outflows and economic slowdown in emerging countries, resulting in a relative decrease in import demand from emerging countries.

Liquidity of export companies is also rapidly deteriorating ahead of the full-scale US interest rate hike this year. The loan interest rate for domestic small and medium-sized enterprises increased by only 0.5 percentage points over 30 months during the previous US interest rate hike period (July 2016 to October 2018), but recently it rose by as much as 0.8 percentage points over 10 months from May 2021 to February this year.

The report pointed out that the US interest rate hike leads to an increase in the won-dollar exchange rate, increasing the cost of dollar-denominated imports and potentially worsening export profitability. This is because the won/dollar exchange rate surpassed 1,200 won this year, increasing the burden of raw material imports in won terms.

Since the import share of primary products and intermediate goods accounts for 73% of total imports, the recent sharp rise in international raw material prices, along with the exchange rate increase, has been identified as a factor that doubles the burden of raw material imports.

However, although the yen depreciation has become visible as a result of the US interest rate hike, its impact on Korean exports is analyzed to be limited. This is because during the period when the Japanese government induced yen depreciation (2012?2016), Japan's export volume growth rate was less than 1 percentage point annually.

Researcher Ji-sang Hong of the Trade Association emphasized, "In preparation for the steep US interest rate hike, it is necessary to proactively prepare measures to ease corporate loans and provide multifaceted support that can enhance cost competitiveness by reducing ancillary costs of export companies such as maritime freight."

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