Korea’s Current Net Exports Having Negative Effect on Its Economic Growth Rate

South Korea’s net exports reduced the country’s economic growth rate by 0.9 percentage points in the third quarter of this year, according to the Bank of Korea on December 10.

This trend has continued for years. For example, the net exports’ contribution to economic growth was negative 1.9 percentage points in the first quarter of this year and negative 2.3 percentage points in the second quarter of this year. Although it reached positive 0.4 percentage points in 2014, it dropped to negative 1.0 percentage point in 2015 and reached 0.7 percentage points last year. This year, the contribution is likely to be below zero for the third consecutive year for the first time since 1989 to 1991.

The net exports having a negative effect on the economic growth is mainly because of an illusion related to semiconductor exports. Net exports’ contribution to economic growth is calculated based on the total export volume with export price factors not taken into account. On the contrary, export growth rate calculation reflects prices. These days, South Korea’s total exports, which are likely to reach an all-time high this year, are being led by semiconductors and the export volume of this export item has increased slowly although the export value has increased rapidly based on a worldwide increase in semiconductor price. Last month, South Korea’s export value index increased 5.2% from a year ago while its export volume index fell 1.9%.

Another reason is a high rate of increase in import. This year, the investment in the sector significantly increased along with the imports of semiconductor manufacturing equipment as the local economy rebounded. According to the Bank of Korea, South Korea’ import volume index showed an increase of 0.8% last month while its export volume index fell 1.9%.