What is good for the U.S. economy may prove to be not so good for the rest of the world, especially for emerging economies. And Korea will likely be hit hardest by the consequent economic setback worldwide, local analysts said.
The U.S. economy apparently seems to be on a roll. According to October job figures announced by the Department of Labor, 270,000 jobs were added to payrolls last month alone, pulling down the unemployment rate to 5 percent, the lowest since April 2008. The favorable employment situation will lighten the burden for the Fed to raise the interest rate next month, analysts said.
Situations facing other major economies are quite the opposite. China's growth rate in the third quarter was 6.9 percent, falling below 7 percent for the first time in six years. Japan even saw its growth rate turn toward negative territory as its economy contracted by 0.3 percent in the second quarter.
Sandwiched between the coming U.S. interest rate hike and a prolonged slump in other major economies are the emerging economies, especially countries that export raw materials, including iron ore and crude oil. They are reeling from a sharp decrease in demand and the steep fall in their currency values. "Given the recent sharp drops of currencies, ranging from the Brazilian real to the Malaysian ringgit, these countries can be seen as experiencing a currency crisis," Chung Eui-min, an analyst at Mirae Asset Securities, told Yonhap News Agency.
Few other countries can feel the adverse effects of these problems more acutely than Korea.
The biggest reason for Korea's trouble is its undue dependency on exports to China, which have reached 25 percent of total outbound shipments. Moody's, in its economic forecast for 2015-17, noted that Korea relies for half its GDP on China and other emerging markets, and if China's economic growth decelerates, Korea's economic growth would not exceed 2.5 percent, either.
"Korea's exports to emerging markets have grown 10 percent on an annualized average over the past five years, and if its shipments decline by 5 percent a year, that would effectively pull down the country's growth rate by 0.4 percentage points," the global ratings agency said.
The U.S. interest rate hike might also result in a massive outflow of capital, hitting hard the domestic stock market. According to the Bank of Korea, more than 20 trillion won ($17.5 billion) left Korea between 2004 and 2006 when the U.S. central bank raised interest rates. Each time the Fed jacked up the money rate - in 1994, 1999 and 2004 - Korea's stock prices fell 10-20 percent, steeper than comparable drops of 8-14 percent in emerging economies.
Others are more sanguine about the effect of a U.S. interest rate rise. "We do not expect the Fed would raise interest rates as steeply as in the past," an official at the Financial Supervisory Board said. "It is true that the currency values of some raw material exporters have reached dangerous levels but they will not fall into a crisis like that in 1997, as most of these countries have introduced floating exchange rates and accumulated sufficient foreign reserves."