Cheap Oil, Better Trade
As the international oil prices have remained low, South Korea’s income terms of trade has continued to rise for a year.
According to a report called “Foreign Trade Index and Terms of Trade in July” released by the Bank of Korea (BOK) on Aug. 24, the income terms of trade stood at 138.58 last month, up 15.9 percent from the same month last year. The figure has been increasing in year-on-year terms for 11 months.
The income terms of trade are referred to as country's "capacity to import" with money from exports.
The index rise often stems from the decline in international oil prices. The net barter terms of trade index has grown for 11 consecutive months in year-on-year terms from Sept. last year, at the time when international oil prices dropped significantly. Due to the Iran nuclear accord, concerns over China’s economic slowdown and the strong dollar, the international oil prices in Dubai in July this year fell 8.9 percent on a monthly basis from last month.
As imports showed a bigger drop with 15.9 percent than exports with 8.3 percent, the net barter terms of trade index in July rose 11.9 percent from the same month a year ago. However, the figure decreased 0.3 percent from the previous month.
Exports in July dropped 8.3 percent from a year earlier. Due to lower oil prices, exports of coal and petroleum products slumped 28.6 percent, while the figure of agricultural, forestry, and fishery products dropped 14.6 percent as well.
Imports fell 15.9 percent. This is largely due to the fact that imports of coal and petroleum products and mining products have decreased 43.8 percent and 32.6 percent, respectively. Imports have shown a decline for 10 months.