The Future of European and Asian Economy after the Euro-zone Crisis 16 January 2013 John Junggun Oh Korea University ojunggun@korea.ac.kr
Contents Impacts of Euro-zone Crisis and Future Prospects on the Trades between Europe and Asia Impacts of Euro-zone Crisis and Future Prospects on Trade Settlement Currency in Asia 2013-01-13 John J Oh 2
Impacts of Euro-zone Crisis and Future Prospects on the Trades between Europe and Asia 2013-01-13 John J Oh 3
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Exports of East Asia to Euro-zone 300,000.0 (US$ mill.) Euro-zone Growth rate 250,000.0 200,000.0 150,000.0 100,000.0 50,000.0-5 4 3 2 1 0-1 -2-3 -4-5 Korea China Japan Exports of East Asia to Euro-zone are decreasing after Eurozone crisis mainly due to falling growth rate in Euro-zone 2013-01-13 John J Oh 4
Shares of Export of Korea 30.0 (%) 25.0 20.0 15.0 10.0 5.0 0.0 EURO JAPAN UNITED STATES CHINA Share of Korean export to Euro-zone among total Korean export is deceasing after the Euro-zone crisis, while one to Asia is slightly increasing 2013-01-13 John J Oh 5
Shares of Export of China 25.0 (%) 20.0 15.0 10.0 5.0 0.0 EURO JAPAN KOREA UNITED STATES Share of Chinese export to Euro-zone among total Chinese export is significantly deceasing after the Euro-zone crisis, while one to Asia is maintained 2013-01-13 John J Oh 6
35.0 (%) Shares of Export of Japan 30.0 25.0 20.0 15.0 10.0 5.0 - EURO KOREA UNITED STATES CHINA Share of Japanese export to Euro-zone among total Japanese export is deceasing after the Euro-zone crisis, while one to Asia is slightly increasing 2013-01-13 John J Oh 7
Shares of Exports of Korea China and Japan to Euro-zone 17.0 (%) 15.0 13.0 11.0 9.0 7.0 5.0 Korea China Japan Shares of Korean, Chinese and Japanese exports to Euro-zone are significantly deceasing after the Euro-zone crisis 2013-01-13 John J Oh 8
Exports of East Asia to Euro-zone: Summary Absolute amount and share of export to euro-zone among total export of East Asia are declining after the euro-zone crisis 2013-01-13 John J Oh 9
Imports of East Asia from Euro-zone 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - (US$ mill.) Korea China Japan Imports of East Asia from Euro-zone are almost maintained even after Euro-zone crisis 2013-01-13 John J Oh 10
23.0 (%) Shares of Import of Korea 21.0 19.0 17.0 15.0 13.0 11.0 9.0 7.0 5.0 EURO JAPAN CHINA UNITED STATES Share of Korean import from Euro-zone among total Korean import is maintained even after Euro-zone crisis, while one from East Asia is declining 2013-01-13 John J Oh 11
Shares of Import of China (%) 21.0 19.0 17.0 15.0 13.0 11.0 9.0 7.0 5.0 EURO JAPAN KOREA UNITED STATES Share of Chinese import from Euro-zone among total Chinese import is maintained even after Euro-zone crisis, while ones from Korea and Japan are declining since falling Chinese export to Euro-zone lowers the demand for imports of intermediate goods from Korea and Japan 2013-01-13 John J Oh 12
25.0 (%) Shares of Import of Japan 20.0 15.0 10.0 5.0 0.0 EURO KOREA UNITED STATES CHINA Share of Japanese import from Euro-zone among total Japanese import is maintained even after Euro-zone crisis, while one from East Asia is also maintained 2013-01-13 John J Oh 13
Shares of Imports of Korea China and Japan from Euro-zone 13.0 (%) 12.0 11.0 10.0 9.0 8.0 7.0 6.0 Korea China Japan Share of East Asian import from Euro-zone among total East Asian import is almost maintained even after Euro-zone crisis 2013-01-13 John J Oh 14
Imports of East Asia from Euro-zone: Summary Absolute amount and share of import from euro-zone among total import of East Asia are almost maintained even after the euro-zone crisis 2013-01-13 John J Oh 15
60,000 (US$ mill.) Trade Balance of Korea 40,000 20,000 - (20,000) (40,000) (60,000) WORLD EURO JAPAN UNITED STATES CHINA Trade balance of Korea against Euro-zone is worsening after Euro-zone crisis 2013-01-13 John J Oh 16
Trade Balance of China 350,000 (US$ mill.) 300,000 250,000 200,000 150,000 100,000 50,000 - (50,000) (100,000) WORLD EURO JAPAN KOREA UNITED STATES Trade balance of China against Euro-zone is substantially worsening after Euro-zone crisis 2013-01-13 John J Oh 17
(US$ mill.) Trade Balance of Japan 150,000 100,000 50,000 - (50,000) (100,000) WORLD EURO KOREA UNITED STATES CHINA Trade balance of Japan against Euro-zone is worsening after Euro-zone crisis 2013-01-13 John J Oh 18
Trade Balance of Korea, China and Japan against Euro-zone 120,000 (US$ mill.) 100,000 80,000 60,000 40,000 20,000 - (20,000) Korea Japan China Trade balance of East Asia against Eurozone is significantly worsening after the Euro-zone crisis 2013-01-13 John J Oh 19
Growth Rate between Euro-zone and Asia 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-5 -10 Euro zone Korea China Japan Growth rates between Euro-zone and Asia have been almost synchronized 2013-01-13 John J Oh 20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012.1-11 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Will Synchronization continue? Share of Korea China Japan Euro-zone Growth rate(%) 14 12 10 8 exports to Euro-zone(%) 6 4 2 0-2 -4 Share of Asian export to Eurozone is significantly declining -6 Source: IMF, Oct. 2012 Growth rate in Euro-zone seems hard to recover to the pre-crisis level Inter-dependence between Euro-zone and Asia seems to be weakening although Euro-zone will be continuously an important trading partner of East Asia. Asia needs to increase intra-regional trades 2013-01-13 John J Oh 21
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Power Shift in the World 0.35 0.3 0.25 0.2 0.15 Source: IMF, Oct. 2012 United States EU East Asia The share of GDP of East Asia among total world GDP has been substantially risen since 2008, and surpassed the one of Europe since 2010. This power shift raises the needs of intra-regional trades and cooperation in East Asia 2013-01-14 John J Oh 22
Impacts of Euro-zone Crisis and Future Prospects on Trade Settlement Currency in Asia 2013-01-13 John J Oh 23
Trends of Export Settlement Currencies Shares in Korea (%) The share of export settlement by US dollar has maintained at the level of around 85 percent, and it strongly rebounded after the 2008 global financial crisis mainly because of an increase in the preference of Korean exporters to US dollar, a safe haven currency. A currency of the second largest share of Korean export settlement is euro and the third largest one is Japanese yen.
16 14 12 10 8 6 4 2 Trends of Import Settlement Currencies Shares in Korea (%) 84 83 82 81 80 79 78 77 76 75 74 euro yen won yuan others dollar(right) 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 73 The share of import settlement by US dollar has persistently increased, except in 2009 when dollar was appreciated, up to 82.6 percent in 2011 since US dollar has been depreciated except 2009, and, as a consequence, Korean importers can get some exchange profits and foreign exporters want US dollar, a safety haven currency. A currency of the second largest share of Korean import settlement is Japanese yen reflecting huge amounts of Korean imports, mainly intermediate goods and parts, from Japan, and appreciation of yen. A currency of the third largest share of Korean import settlement is euro,
Trends of US Dollar Settlement Shares in Korea (%) 88 86 84 82 80 78 dollar export dollar import 76 74 72 2003 2004 2005 2006 2007 2008 2009 2010 2011 The share of export settlement by US dollar began to be higher than the share of import settlement by US dollar since 2008 mainly because of an increase in the preference of Korean exporters to US dollar, a safe haven currency since the 2008 global financial crisis.
10 Trends of Euro Settlement Shares in Korea (%) 9 8 7 6 euro export euro import 5 4 2003 2004 2005 2006 2007 2008 2009 2010 2011 The share of export settlement by euro has been persistently higher than the share of import settlement by euro since 2008 mainly because of a rise in Korean export to Europe and an increase in the preference of Korean exporters to euro having been appreciated
17 Trends of Japanese Yen Settlement Shares in Korea (%) 15 13 11 9 yen export yen import 7 5 3 2003 2004 2005 2006 2007 2008 2009 2010 2011 The share of import settlement by Japanese yen has been persistently higher than the share of export settlement by Japanese yen, differently from US dollar and euro. Korea mostly imports intermediate goods and parts from Japan, and thus is not easy to reduce imports from Japan in spite of appreciation of Japanese yen. As a result, Korean importers tend to increase import settlement directly by Japanese yen to escape increasing burdens of payment in terms of Korean won due to persistent appreciation of Japanese yen.
Trends of Korean Won Settlement Shares in Korea (%) 3.5 3 2.5 2 1.5 won export won import 1 0.5 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 The share of import settlement by Korean won has been persistently higher than the share of export settlement by Korean won. Korean won has been persistently appreciated since 2002 except during the period of global financial crisis from 2008 and 2009. As a consequence, Korean importers can get exchange profits when they settle import payments with Korean won.
0.18 0.16 0.14 0.12 Trends of Chinese Yuan Settlement Shares in Korea (%) 0.1 0.08 0.06 yuan export yuan import 0.04 0.02 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 From 2010 and 2011, the share of export settlement by Chinese yuan has been higher than the share of import settlement by Chinese yuan. In particular, the share of export settlement by Chinese yuan has significantly risen in 2011 with the help of Chinese policy of yuan internationalization and preference of Korean exporters to Chinese yuan having been persistently appreciated, although share of export settlement by Chinese yuan is still at the low level.
Trends of Exchange Rates of Major Trade Settlement Currencies 140 130 120 110 100 90 80 70 60 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Korean Won/10 Japanese Yen Chinese Yuan*15 Euro/ US Dollar*100 1/US Dollar Index*10000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Trend of Exchange Rate and Trade Settlement Shares of US Dollar 0.011000 0.010500 0.010000 0.009500 0.009000 0.008500 0.008000 0.007500 0.007000 87 85 83 81 79 77 75 1/US Dollar Index dollar import settlement share(%) dollar export settlement share(%) Trend of the share of import settlement by US dollar shows a similar pattern as a change in the level of an exchange rate of US dollar. On the other hand, the share of export settlement by US dollar has continuously declined during the period of depreciation of US dollar before the 2008 global financial crisis mainly because of exchange risk aversion of exporters. It, however, rebounded in spite of depreciation of US dollar since 2008 because of an increase in the preference to US dollar, a safe haven currency.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Trend of Exchange Rate and Trade Settlement Shares of Euro 1.1000 1.0500 1.0000 0.9500 0.9000 0.8500 0.8000 0.7500 0.7000 0.6500 0.6000 10 9.5 9 8.5 8 7.5 7 6.5 6 5.5 5 Euro/ US Dollar euro import settlement share(%) euro export settlement share(%) Euro has been appreciated except 2009 and 2010 because of the 2008 global financial crisis. A trend of the share of import settlement by euro shows a similar pattern as a change in the level of an exchange rate of euro. On the other hand, the share of export settlement by euro increased during the period of appreciation of euro before the 2008 global financial crisis mainly because of preference to euro of exporters. It, however, declined in spite of appreciation of euro since 2008 because of an increase in the preference to US dollar, a safe haven currency.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 135.00 Trend of Exchange Rate and Trade Settlement Shares of Japanese Yen 17 125.00 115.00 105.00 95.00 85.00 75.00 15 13 11 9 7 5 3 Japanese Yen yen export settlement share(%) yen import settlement share(%) Japanese yen has been appreciated since 2002 except during the period from 2005 to 2007. A trend of the share of import settlement by Japanese yen shows a similar pattern as a change in the level of an exchange rate of Japanese yen. On the other hand, the share of export settlement by Japanese yen has maintained at 5.4~5.6% level until 2005, but it has slightly declined during the period from 2006 to 2009 due partly to depreciation of Japanese yen from 2005 to 2007.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1300.00 Trend of Exchange Rate and Trade Settlement Shares of Korean Won 3.5 1250.00 1200.00 1150.00 1100.00 1050.00 1000.00 950.00 900.00 3 2.5 2 1.5 1 0.5 0 Korean Won won import settlement share(%) won export settlement share(%) Korean won has been appreciated since 2002 except during the period from 2008 to 2009 due to the 2008 global financial crisis. A trend of the share of import settlement by Korean won shows an increasing trend regardless of an exchange rate of Korean won except 2008 when it dropped due to an increasing burden of payment in terms of Korean won because of a sharp depreciation Korean won during the 2008 global financial crisis. The share of export settlement by Korean won shows an increasing trend regardless of an exchange rate of Korean won.
8.5000 Trend of Exchange Rate and Trade Settlement Shares of Chinese Yuan 0.18 0.16 8.0000 7.5000 7.0000 6.5000 0.14 0.12 0.1 0.08 0.06 0.04 0.02 Chinese Yuan yuan import settlement share(%) yuan export settlement share(%) 6.0000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0 Chinese yuan has been persistently appreciated. The share of import settlement by Chinese yuan has maintained at a tiny level, but began to increase since 2010. The share of export settlement by Chinese yuan has also maintained at an insignificant level, but began to substantially leap since 2010 with the help of Chinese policy of yuan internationalization and preference of exporters to Chinese yuan having been persistently appreciated.
Future Prospects on Trade Settlement Currency It depends on the amount of trades and the degree of appreciation of the currency how much it is used as a trade settlement currency In the near future, the East Asian exports to Eurozone is not expected to substantially increase, and euro is not expected to be appreciated considering the expected low growth rate in Eurozone Accordingly, the share of euro as a trade settlement currency, in particular, as an export settlement currency, is also expected to decrease in Asia. 2013-01-13 John J Oh 37