SEOUL, Dec. 1 (Korea Bizwire) — A further rise in international oil prices is expected to impact the South Korean economy negatively by sapping consumer spending and corporate investment, a private think tank said Friday.
Crude prices have recently surpassed the US$60 mark per barrel on a global economic recovery and on hopes for the extension of an output cut deal by the Organization of Petroleum Exporting Countries (OPEC).
In a grim report, Hyundai Research Institute warned that South Korea’s real gross domestic product could decrease by 0.96 percentage point should international crude prices rise to $80 per barrel.
“A hike in international oil costs will have a negative impact on private consumption and corporate capital spending, exerting downside pressure on the local economy,” the think tank said.
Under such a scenario, South Korea’s consumer spending could drop by 0.81 percentage point with corporate investment in new plants and equipment likely to fall by 7.56 percentage points due to falling sales and increased costs.
However, South Korea’s exports, one of its key growth engines, would likely expand by an additional 1.08 percentage points thanks to increased export prices, it said.
The institute forecast global crude consumption to increase 1.2 percent on-year in 2019, slower than this year’s 1.7 percent growth.
South Korea is greatly influenced by crude price swings as Asia’s fourth-largest economy depends entirely on imports for its oil needs.