The stimulus tapering by the U.S. Federal Reserve, a move that had long been anticipated, is unlikely to have a big impact on the local industry, according to top Korean business people on Thursday.
Fed Chairwoman Janet Yellen announced after the two-day-long Federal Open Market Committee (FOMC) meeting Wednesday that the U.S. will scale back its quantitative easing (QE) scheme by $10 billion in April.
The move will reduce the amount of bond purchases to $55 billion a month from $65 billion. This is a third monthly scaleback from $85 billion in December.
Business sources said the relatively upbeat prediction reflects past experiences that showed South Korea to be largely immune to falloffs that have hit some emerging economies.
“The announcement has been widely anticipated and there is a need to take into account that the Fed has taken the step because it is confident about the U.S. economy,” said Sohn Young-ki, a senior economic analyst at the Korea Chamber of Commerce and Industry (KCCI).
He pointed out that unlike some other countries, South Korea maintains a large current account surplus, has sound fiscal policies, manageable levels of external debt and sound economic fundamentals.
“In fact, the latest tapering indicates that the Fed thinks the U.S. economy is recovering, which could exert positive influence on the South Korean economy,” the KCCI official said.
Yellen said at the news conference that mixed economic indicators showing slower-than-anticipated growth coming into this year were largely brought on by the cold weather. The Fed predicted that the world‘s largest economy will grow 2.8-3 percent this year, a slight dip from 3-3.2 percent estimated earlier in the year. The Fed chair also said it may consider a rate hike in the spring of 2015.
The Korea International Trade Association (KITA) said recently that a poll conducted on 678 local companies showed 85.7 percent saying the U.S. scaling back of cash reaching the market did not affect exports in any noticeable manner.
Others such as Samsung Electronics and its smaller rival LG Electronics said that while the latest move by the Fed could fuel foreign exchange volatility, it will not be on a scale that will hurt business.
“There is little risk of sharp or immediate fluctuation in exchange rates,” an official at LG Electronics said. He, however, said the electronics industry is carefully monitoring the financial market.
In autos, Hyundai Motor Group, the world fifth-largest automotive conglomerate, said while the latest tapering move will not impact sales in a strong way, there is a chance that the demand for new cars will decrease in the United States.
Hyundai Motor and Kia Motors, the two flagships of the conglomerate, had planned to increase U.S. sales by 6 percent this year vis-a-vis 2013.
On the impact on the steel industry, sources at POSCO, the country’s leading steelmaker, said they are keeping tabs on emerging markets but anticipated that any shock will be short lived.
“Foreign exchange rate fluctuations can elevate risk for companies wanting to make investments, which can sap demand for facilities that need steel,” an insider at the company said. He said such a development can affect steel exports, but not to a serious extent.
