South Korea's Revenue From Overseas Construction Industry Plunges Due To Low Oil Prices

by Dalal Nasif / Feb 18, 2016 03:38 AM EST

South Korean construction companies are more likely to be subjected for a sluggish growth this year as predictions of oil to cut to half of its price at the present. (Photo by Chung Sung-Jun/Getty Images)

It has been said that too low of an oil price will not benefit a country's economy. As the price for oil dropped to around $50 from $105 last year, many countries have suffered such an impact, which included South Korea with its construction industry relying heavily on energy as its biggest consumption.

South Korea's construction projects dropped to 30 percent last year according to the Bank of Korea, making it the biggest fall since 1992 for 39.9 percent. The income from the said industry totaled to $13.49 billion, Korea Times wrote.

The financial gain from construction initially reached $20.37 billion in 2013 but fell to $19.35 billion in 2014. While these declines were attributed to the Asian financial crisis as reported by the central bank, the drip last year was mainly due to the low demand for oil due to the plunge in its prices, cutting to more than half.

It was expected that it would not be much different this year for construction companies. Even the Middle East has also been canceling projects on construction or has delayed payments for the finished ones. The Arab country plays a major part in South Korea's construction industry as it relies on the country for nearly half of its export projects.

The whole world is experiencing economic doldrums due to the effects brought about by the long-term drop in the price of oil. It was further noted by the source that South Korea's overall trade economy is predicted to grow up to just 2.1 percent this year, according to the Korea Institute for Industrial Economics & Trade.

The downturn for the steel, automobiles, shipping, and other industries that rely on oil will likely remain this year unless per barrel starts to hike up to more than $70. However, the forecast for oil barrels is that it will drop to around $20 this 2016, according to Korea Herald.

South Korea relies 50 percent of its Growth Domestic Product (GDP) to exports, with China taking in a quarter of these which include electronics, vehicles, and machinery, as reported in an article in Geopolitical Futures. China has been hit particularly hard by the drop in oil price leading it lose markets.

The drop in oil price may have benefited local consumers by being able to buy gasoline at a lower price but unknown to many, the drop in oil price was also one of the major reasons why South Korea's president had to approve the lobby making it easier for companies to fire employees. These layoffs resulted in many anti-government rallies in the country last November.