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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

New Three Highs and the Korean Economy

New Three Highs and the Korean Economy

RHEE Tae-Hwan

Mar. 31, 2010

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Originally released on February 16, 2010

1. The Three New Highs Phenomenon in 2010

The three price variables which affect corporate activities, i.e. the won's value, commodity prices and high interest rates are expected to remain high in 2010. Since nearly hitting bottom in March 2009, the won's value has continued to go up, appreciating 40.5% against the dollar by mid-January 2010. Upward pressure on the won's value such as from the record high current account surplus of US$42.67 billion and capital account surplus of US$26.45 billion in 2009 have been also maintained. Reflecting this trend, the won/dollar exchange rate is expected to appreciate 16% year-on-year in 2010. Oil and commodity prices are also expected to continue its upward trend along with the global economic recovery. Oil prices (based on Dubai oil) jumped 89.4% to US$76.75 per barrel in January 2010 from a near record low of US$40.52 per barrel in December 2008. In 2010, Dubai oil prices will likely rise 35.5% to US$83.9 compared to last year. Meanwhile, interest rates have remained low in early 2010 in accordance with stimulus packages around the world as well as in Korea in 2009. However, if there is a rise in inflationary pressure in 2010, for example from asset bubbles, many governments will raise interest rates as part of their exit strategies.

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