Forecasters of 2010 Economy
The year has come to a near end and people are merely days away from their holiday gifts, New Year resolutions, and nights of champagne and festivities. Sure, everyone has become a year older, and that is a fact. The festivities will die down, the champagne will disappear one way or another and the year 2010 will certainly come, and that is another fact. However, as abrupt as this may sound, what about the economy The Korean economy did fairly well this year, considering that other nations were experiencing economic meltdowns, but there is no guarantee that the climate for 2010 will be as favorable. From a gamut of words, three pop out as a forecast of next year's economic climate: green growth, mergers and acquisitions, and the possibility of double-dip recession.
The Green Growth: Main Direction of Future Korean Economy
The first hot topic to rise in 2010 is green growth. Lately, the worldly trend has turned to going green and the 'United Nations Climate Change Conference Copenhagen 2009' that took place recently was no scene off an episode of 'Captain Planet.' The summit was the epitome of the seriousness of our climate issues and as a response, Korea has stepped in to make things right. The National Energy Committee chaired by President Lee Myung-bak will participate in a long term international effort against global warming planned to end in 2030.
Four Goals of Green Growth
President Lee announced four specific goals to be achieved by 2030. The first is to improve energy efficiency and reduce energy consumption. By 2030, Korea will reduce energy intensity levels from 0.341 TOE/US$1000 to 0.185 TOE/US$1000. This signifies a 46 percent and 42 million TOE reduction in energy consumption. The second goal is to increase the supply of clean energy and reduce the use of fossil fuels. The goal is to reduce fossil fuel dependency from the current 83 percent to 61 percent, and to increase the use of renewable energy up to 11 percent. The third goal is to boost the green energy industry so Korea's green energy technology will have competitive advantage in the world market. The fourth plan is to ensure citizens access to affordable eco-friendly energy.
Green Growth and its Economic Implications
The largest advantage of the green growth plan is the creation of jobs. The Korean government has agreed to invest 50 trillion won into nine core businesses and 27 liaison businesses to create 960 thousand jobs. For instance, the government will invest 18 trillion won into the revival of the 4 large rivers to create 280 thousand jobs by 2012. However, there is much criticism about the green growth business surrounding the revival of the four large rivers. Of the jobs that are being created, 96 percent of them are engineering work requiring simple labor. There is no training of a new industry involved and whilst other countries including the U.S is investing 15 billion dollars every year for ten years into the development of clean energy, bound to create 5 million jobs, the Korean government is spending 18 trillion won into the revival of the 4 large rivers, but only 3 trillion won in clean energy until 2012. This is may be a problem because when oil prices go beyond $120/bbl, the world will go for a multiple energy system. This will open the market to non-oil producing companies where Germany will rank first and Spain second. Therefore, it would be crucial for Korea to invest into clean energy sources for future advantage in the world energy market.
2010 Mergers & Acquisitions
This year, the Korean M&A market experienced a slump. After the breakout of the global financial crisis, companies moved away from aggressive management strategies like M&A. The financial sector, the main funding agency for M&A, also experienced a great slump and Investment Banks, an important source of income for M&A deals, were busy restructuring. Experts say this situation will not change drastically next year. However, more articles will be on the market this year because all the M&A items that were cancelled or delayed due to the slump are waiting in line for their highest bidders. The surplus of supply will provide opportunities to buy companies at lower prices. Starting from next year, large companies worth trillions like Daewoo International and Hynix will be open for sale on the M&A market. The Korea Asset Management Corporation (KAMCO) will start its preliminary bidding for Daewoo International early next year. As large corporations including Posco (586,000 won) and Hanhwa (47,100 won) show interest through official and unofficial channels, much competition is predicted before biddings begin. Daewoo International's estimated worth is currently at 2 trillion won to 3 trillion won.
M&A Trend
Experts point out that enterprises of middle standing manufacturing in the traditional field of shipping, shipbuilding, steel, and chemicals are likely to take part in aggressive M&A. Shin Hwan-jong, an analyst at Woori Investment and Securities stated, "Traditional manufacturers of enterprises of middle standing enter the M&A market in search of a new growth engine. Late next year, these enterprises will act aggressively in the M&A market." On the contrary, there is also a trend where corporations are moving away from big deals worth trillions of dollars to small and middle enterprises below 100 billion won. This is due to the spreading opinion that it is advantageous to buy a small and middle enterprises to complement the company and utilize it to search for new businesses rather than enduring the burden and risk after a large M&A deal. M&A experts point out that, "Small deals are attractive because they are successful when the economy is both good and bad because it is possible to supply funds from equity capital."
IMF states Korean Economy Unlikely to go through Double-Dip Recession
There is much debate about whether Korea will enter a double-dip recession. On December 8, the International Monetary Fund (IMF) stated that Korea was not in danger of a double-dip recession and that a few months later it would have to raise interest rates and normalize its stimulus package. An IMF mission led by Subir Lall stated, "The Bank of Korea's appropriate expansive policy maintenance contributed largely to the economic recovery, and if this growth continues for a few months, the Bank of Korea can consider reducing its stimulus package. The stimulus package will aid the recovery of the Korea economy. It is true that it is too early to raise interest rates, but Korea must be ready when the time comes." Lall also added, "Because the upwards and downwards risk is keeping a general steady balance, there won't be any risk of a double-dip recession. Korean stocks are at their lowest rates but active investment will raise stock rates and Korea's active exports to newly rising countries will help prevent a double-dip recession."
Inside View on Double-Dip Recession
Our economy persevered during the economical crisis, and CEOs of Korea have shown optimism and great faith towards next year. Majority of CEOs have stated that they will increase investments next year, promising an influx of investment into the Korean economy. On a survey carried out on Decenber 7 by the Asia Economy News, majority of CEOs and CFOs from major and small distribution industries like Samsung Electronics and Hyundai Motors, answered that they didn't expect another global economic crisis to breakout in 2010. More specifically, 56.7% answered that another global economic crisis was highly unlikely, while 38.5% answered that it was highly likely. In comparison, there were more CEOs who had an optimistic view. To the question concerning investment plans, 36.9% answered that they would keep current investment levels, 18.5% answered that they would raise investments by 10% and 12.3% answered that they would raise investments by more than 30%. Overall, 47.8% answered that they would raise investment.
2010 to Promise Better Yield
The sun rises and everybody sees that it has become the year 2010. The champagne glasses are put away and the confetti is swept off the floors. As everything goes back to their rightful places, people keep asking, "Will this year be a better year" The green growth, M&A, and viewpoints that a double-dip recession will be highly unlikely; there definitely are indications that 2010 will be more fruitful. Hopefully, 2010 will be a three-thumbs up.
