The trend of improved terms of trade in South Korea has continued for the eighth consecutive month. This is attributed to the slowdown in the decline of export prices, which has resulted in import prices decreasing more significantly than export prices.
Exports of semiconductors, the largest export item in the country, continued to perform well. The semiconductor export volume index saw the largest increase in three years and 11 months, while the export value index also saw the largest surge in six years and one month.
According to the “Trade Index and Terms of Trade in January 2024” released by the Bank of Korea on Feb. 28, last month’s net terms-of-trade index for goods rose to 87.24, representing an increase of 3.1 percent compared to a year ago. This marks the eighth consecutive month of increase since June last year. Compared to the previous month, it also rose by 2.3 percent, marking the second consecutive month of increase.
The net terms-of-trade index for goods measures the amount of goods that can be imported with one unit of exported goods. An improvement in the net terms-of-trade index for goods means that the quantity of goods that can be purchased abroad with the proceeds from exports has increased.
The improvement in the net terms-of-trade index for goods is attributed to a 4.2 percent decrease in import prices, while export prices only decreased by 1.2 percent. This discrepancy is mainly due to a significant increase in semiconductor export prices, counterbalanced by a decline in import prices of mineral products such as natural gas.
The income terms of trade index, which measures the quantity of goods that can be imported with the total export amount, surged to 109.99, marking a remarkable increase of 20.8 percent compared to the same month last year. This is the largest increase since September 2015 when it was 20.8 percent and continues an upward trend for the eighth consecutive month. With the improvement in the net terms-of-trade index, there has been a significant enhancement in the export volume index as well as a consequence.
Last month, the export volume index increased by 17.1 percent, marking the largest surge since May 2021 when it stood at 22.8 percent. This growth was driven by increases in sectors such as computers, electronics, and optical equipment with 26.9 percent as well as transportation equipment with 18.3 percent. The export value index, measured in U.S. dollars, also rose by 15.7 percent, representing the ninth consecutive month of increase. This is the largest increase since May 2022 when it reached 20.1 percent. Similarly, sectors such as computers, electronics, and optical equipment and transportation equipment saw significant increases with respective growth rates of 30.6 percent and 21.4 percent.
Looking specifically at semiconductors, the semiconductor export volume index saw a remarkable increase of 48 percent compared to the same period last year, showing the ninth consecutive month of growth. This is the largest surge in semiconductors in three years and 11 months since February 2020, when it was 51.2 percent. The export value index for semiconductors surged by a whopping 55.5 percent, marking the largest increase in six years and one month since December 2017, when it stood at 67.3 percent. This marks the third consecutive month of increase.
The import volume index decreased by 3.9 percent, representing the seventh consecutive month of decline. While sectors like coal and petroleum products saw a 15.4 percent increase and machinery and equipment an 8.4 percent rise, mineral products declined by 7.4 percent and chemical products by 10.1 percent. The import value index, measured in U.S. dollars, dropped by 7.9 percent, marking the eleventh consecutive month of decline. Additionally, coal and petroleum products increased by 14.4 percent, machinery and equipment by 5.3 percent, while mineral products decreased by 14.8 percent and chemical products experienced a decline of 15.9 percent.