High oil prices may cut trade surplus to $800 mil. next year High crude-oil prices, if they remain at $30 per barrel, will cut the nation's current account surplus to $800 million next year, dealing a devastating blow to the national economy, a report warned yesterday.

In its latest forecast for the impact from soaring oil prices, the Federation of Korean Industries said that in case crude prices go up further to $35 per barrel, the current account balance will swing back into the red to the extent of about $2.1 billion.

The sky-high oil prices will also trigger inflationary spirals next year, pushing up consumer price gains by 4 percent to 4.6 percent, the FKI report cautioned.

"If oil prices stay in the $30 level next year, the nation's current account surplus will fall from the targeted $4.4 billion (based on an oil price of $25) to a mere $880 million," said the FKI report. "The $30 oil price will also push up consumer prices by an additional 0.9 percent, raising the yearly gains to over 4 percent."

In case oil prices surge to $35, the current account balance will shift from a surplus of $6.5 billion to a deficit of $2.1 billion, while consumer prices will rise by an additional 1.5 points to 4.6 percent, it said. It also predicted that the annual growth rate of GDP will tumble below 5 percent.

"In the face of the strong oil prices, the government has to revise its macroeconomic policies, downgrading the economy's performance targets," the report argued.

The FKI said that the high cost of oil will deal a serious blow to energy-sensitive sectors, such as auto, steel and cement. The nation's car sales, for instance, will fall by 10.8 percent if the local oil rate rise to 1,420 won per liter.

Domestic petrochemicals and chemical textile makers will also face difficult circumstances, as they are kept from reflecting high oil prices in their product prices, due to a supply glut. But semiconductors will not be affected by the rising oil prices, the FKI said. (YCM) Aside from the FKI, a host of economic think tanks at home and abroad have poured out dismal forecasts about the devastating impacts of sky-high oil prices on the Korean economy lately. The Hyundai Research Institute, for instance, forecast that the high oil price will knock off about 10 percent of this year's gross national income.

Updated: 09/18/2000

http://koreaherald.co.kr/news/2000/09/__05/20000918_0532.htm

-- Martin Thompson (mthom1927@aol.com), September 17, 2000