S. Korea’s exports reach new high while domestic consumption weakens

Posted on : 2021-09-02 17:48 KST Modified on : 2021-09-02 17:48 KST
This trend has led to an intensifying “K-shaped” pattern in the business recovery
Containers are loaded on HMM Prestige (provided by Hyundai Merchant Marine)
Containers are loaded on HMM Prestige (provided by Hyundai Merchant Marine)

South Korean exports have reached new highs even amid the fourth wave of the COVID-19 pandemic, while domestic demand has sunk into another slump.

This trend, with the strong export performance failing to translate into domestic demand, has led to an intensifying “K-shaped” pattern in the business recovery.

The Ministry of Trade, Industry and Energy (MOTIE) announced that August exports had been recorded at US$53.23 billion on Wednesday. The number was 34.9% higher than during the same month in 2020, and the highest ever recorded for the month of August.

Cumulatively, exports from January to August stood at US$411.9 billion, up 27.6% from the same period in 2020.

The MOTIE said that it was the shortest length of time ever taken for South Korea to pass the US$400 billion mark within a single year. In 2018 — the only year to date in which annual exports exceeded US$600 billion — the cumulative total for January to August was US$399.7 billion.

Average daily exports for August were US$2.31 billion when the number of working days was factored in. That total was also an all-time high for the month of August.

Exports have been increasing for the past 10 straight months, with growth of over 20% for five months in a row. This marked the first time in 11 years that the rate of increase in exports exceeded 20% for five consecutive months, the last time having come during the months of April to August 2010.

Increases were also observed for all 15 major export categories for three months running. For the first time in history, double-digit rates of increase were seen in all 15 categories.

The MOTIE concluded that amid continued strong performance by such mainstay industries as semiconductors, petrochemicals, and general machinery, historically high August export numbers for new industries such as biohealth, rechargeable batteries, farming/fishing products, and cosmetics contributed to evenly strong growth for both traditional and emerging industries.

“Semiconductors are playing the role of vanguard in the export growth trend, and that combined with petrochemicals and general machinery providing a strong backbone and emerging categories such as biohealth and rechargeable batteries experiencing rapid growth has allowed steady performance to continue without being unsettled by external variables,” said Minister of Trade, Industry and Energy Moon Sung-wook.

Moon also said the result was attributable to the “competitiveness of manufacturing.” At the same time, he noted the need to “continue managing uncertainties such as the spread of [COVID-19] variants, distribution difficulties, component supply issues, and rising raw material prices.”

But while exports have been booming, domestic demand has been limp amid the pandemic’s fourth wave.

On Tuesday, Statistics Korea released figures on industry activity trends in July. The seasonally adjusted retail sales index, which shows consumption trends, stood at 119.3 (where 100 represents 2015 levels), down by 0.6% from the previous month.

Retail sales also experienced minus growth for the first time since May (-1.8%).

Sales declined for semi-durable goods such as clothing amid decreased apparel sales as intensified social distancing resulted in fewer people going out to shop. Sales were also down for durable goods such as automobiles due to supply issues with raw and subsidiary materials.

With an industry structure in place where strong export performance does not readily translate into domestic demand, observers are voicing concerns that the differences between exports and domestic demand could deepen the polarization divide.

“It’s fortunate that exports at least have performed strongly amid the weak domestic demand, although one hitch is that the volumes haven’t increased by that much,” said Joo Won, chief of the economic research office at the Hyundai Research Institute, suggesting that the export “boom” is mainly a reflection of rising raw material prices while the actual increase remains limited.

“Given our industry structure where we rely on outside sources for purchasing a lot of the components, technology, and materials that go into making export items, it’s difficult for the export boom to translate into increasing domestic demand,” he noted.

By Kim Young-bae, senior staff writer

Please direct comments or questions to [english@hani.co.kr]

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