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Mar 5, 2005

Falling chip prices may dampen SK recovery

SEOUL - South Korea's economic recovery may be hindered by a tumble in semiconductor prices, the country's main export item, and runaway oil costs, the central bank said Friday.

The price for each 256-megabyte double data rate (DDR) dynamic random access memory (DRAM) chip came to US$2.84 on Wednesday, down 22.6% from the end of last year, the Bank of Korea (BOK) said.

The price level was out of line with the central bank's forecast. At the end of last year, the BOK predicted that the average price for the DDR DRAM and synchronous DRAM chips would be $3.4 this year, down 30% from the end of 2004.

Such a sharp fall in semiconductor prices bodes ill for South Korea's economy as its exports rely heavily on semiconductors, the BOK said.

In February, semiconductor exports amounted to $2.26 billion, making up the largest portion of the country's total exports worth $20.52 billion. Semiconductor exports grew 16.7% last month from a year earlier.

Asia's third-largest economy has been largely dependent on exports for growth amid weak domestic demand since the end of 2002, when South Korea saw its consumer credit bubble burst.

Skyrocketing oil prices are also expected to put a crimp in the economic recovery of South Korea, the central bank said.

The price of Dubai crude oil, which accounts for 80% of the country's oil imports, rose 23.9% year-on-year to $42.83 per barrel as of Wednesday.

It compared with an average $34 a barrel that the BOK had expected for Dubai and other crude oil. South Korea is the world's fourth-largest oil importer and imports all of its oil.

The nation's economic growth fell to an annual 4.6% in the third quarter from 5.5% in the previous three months.

According to the central bank estimate, it is also expected to fall to 4% in 2005 from an estimated 4.7% last year.

(Asia Pulse/Yonhap)

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