South Korea’s exports are falling at a faster pace than expected from the beginning of the year, fueling concern that the country’s economic growth rate could fall to the mid-2 percent range this year. The nation’s trade surplus, which has continued for 83 months in a row, is also under threat.
Korea’s export growth rate significantly slowed down from 67 percent at the end of 2017 to 30 percent to 40 percent in the second half of last year. The figure shrunk to 11.7 percent in November last year and recorded minus 8.3 percent last month. Considering the 28.8 percent drop in semiconductor exports between Jan. 1 and 20, the possibility of Korea’s total exports dropping for the second consecutive month cannot be ruled out. If that happens, it will be the first time in two years and four months.
Semiconductor exports dropped basically due to an excessive supply. China’s economic slowdown made the problems worse. As China’s economic growth has slowed, exports to China, the workshop of the world, fell. Korea’s exports to China from Jan. 1 to 20 fell by 22.5 percent compared to a year earlier.
“If the current export trend continues, it is uncertain that South Korea can meet the government’s growth projections of 2.6 percent to 2.7 percent for this year,” said Joo Won, the head of economic research at Hyundai Research Institute. “When major export items, such as memory chips and petrochemicals, continue to show a negative export trend, Korea would be hard pressed to accomplish the government’s economic growth goal.”
The government believes that the nation’s trade balance, which posted a deficit of US$1.60 billion (1.81 trillion won) from Jan. 1 to 20, will turn into a surplus on a monthly basis. This is because exports tend to be concentrated at the end of month. South Korea has been recording a trade surplus for 83 months in a row since 2012.
However, the outlook for exports this year is dim with China’s slowing economic growth rate and lower semiconductor prices owing to concerns over oversupply. Ko Kwang-hee, head of the Economic Analysis Department at the Ministry of Economy and Finance, said, “With the weakening demand from China and slowing semiconductor exports, the outlook is not so good.”
In addition, exports of petrochemical products, which are one of the country’s main export items along with memory chips, plunged by 24 percent, deepening concerns. Petrochemical products showed a 68.7 percent growth in exports in June last year but the figure shrunk to 6.8 percent last month. The two main export items are faltering. Imports also decreased by 9.5 percent to US$27.30 billion (24.12 million) from Jan. 1 to 20 compared to a year ago. In particular, semiconductor manufacturing equipment had a 62.5 percent drop.