BOK: Export Demand Increases by Over 3%

A forecast has emerged predicting substantial growth in South Korea’s exports this year. On Jan. 18, the Bank of Korea (BOK) published an issue note titled “Assessment and Insights on Global Growth and Trade Post-Pandemic – BOK Issue Note.”

The BOK foresees an expansion in South Korea’s export growth, particularly driven by the rebound in the IT sector. However, the bank also diagnoses the need for enhancement of export competitiveness in key industries such as semiconductors and automobiles, as well as the service sector. This is seen as a response to global fragmentation and the anticipated slowing growth of the Chinese economy in the long term.

The report initially observed a sluggish recovery in global trade trends after the pandemic, marked by trade slowdown trends alongside heightened fragmentation, currency tightening, and a service-centric recovery. It noted that the pace of trade recovery remains modest due to these factors.

The analysis suggests that the trade tensions between the United States and China, along with the Russia-Ukraine conflict, are contributing to the deepening of global fragmentation. These conflicts are identified as factors negatively impacting world trade. Moreover, the ongoing global monetary tightening in response to high commodity prices is highlighted as an additional constraint on trade.

In addition, the analysis indicates that the simultaneous strength of international oil prices and the U.S. dollar is exerting a negative impact on manufacturing industry production and trade. The pandemic shock has led to the establishment of a substitution relationship between goods and services demand. As a result, the global economy has grown through service recovery, while trade recovery has been relatively weak.

However, global trade this year is expected to enter a gradual recovery phase as the impact of global monetary tightening and shocks related to a preference for goods and services diminish. Nevertheless, the report anticipates that the trade growth rate for this year will be 3.5% due to factors such as fragmentation, instability in the Middle East, and China’s economic indicators showing weakness. It also highlights that this projected growth rate falls below the historical long-term average of 3.8% from 2007 to 2018.

The outlook for the South Korean economy suggests that growth is expected to expand primarily through exports and capital investment, driven by the gradual recovery in global trade and the resurgence in the IT sector. The backdrop also includes the recovery of global investment, previously affected by industrial policies in advanced countries like the United States and the impact of high interest rates.

In particular, the recovery of import demand in major export destinations, including China and the United States, has increased from -0.6% last year to 3.3% this year. This positive trend is also contributing to the outlook for improvement in South Korean exports. Import demand is measured by taking the weighted average of the import growth rates of the top 10 countries for South Korea, considering the country’s export share in those countries.

In the medium-term outlook for the next 5 years, it is expected that global trade will generally follow a trend similar to or slightly below the global growth rate. However, in the long term, there is analysis suggesting that factors such as the slowing growth of China and ongoing global fragmentation may act as structural downward pressures on global trade.

Furthermore, after the completion of investments related to technological innovation and environmental transition, the ultimate impact of these factors on the global trade structure is deemed uncertain.