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(ClipartKorea)

South Korea remains mired in a trend of poor export performance.

After recording a 16.6% decline in export dollar value in January compared with the same month in 2022, South Korea saw its average daily export value in February fall by 14.5% for the first 10 days of the month compared with the same period last year.

As trade conditions have remained in a deficit, the export slump is emerging as the biggest concern for the South Korean economy. The government has maintained that the recent underperformance in exports is a shared development among the major exporting countries — but the figures indicate that South Korea’s slump has been more severe than others.

The Korea International Trade Association (KITA) delivered a briefing Wednesday on the “causes of the recent export slump and directions for a response” at the COEX convention center in Seoul’s Gangnam District.

“In light of the scale of the decline in exports, South Korea’s export decline has been large in comparison,” it concluded.

Among the six top-ranked countries for exports, export performance in South Korea, China and Germany entered a trend of decline in the fourth quarter of last year, with South Korea’s drop amounting to the largest of all.

During the fourth quarter of 2022, South Korea’s exports were found to have slid by 9.9% from the same period in 2021, whereas the US’ rose by 8.2% and Italy’s by 3.3%.

China also experienced a drop, but at -6.9%, it was less severe than South Korea’s. Japan and Germany saw changes of -4.6% and -1.9%, respectively.

In terms of export performance this January, South Korea’s slump was more severe than in Japan, where the decline totaled -15.8% between Jan. 1 and Jan. 20.

During the briefing Wednesday, KITA Vice Chairperson Jeong Man-ki attributed the situation “primarily to South Korea’s export industries consisting of intermediate goods-centered items that are sensitive to fluctuations in business conditions.”

According to KITA’s analysis, US$15 billion of the US$17.5 billion decline in total exports during the fourth quarter of last year (85.7%) stemmed from lower intermediate goods exports. By region, exports were down sharply to production bases such as China (-17.8%) and Vietnam (-10.7%).

By category, the rates of decrease included 44.5% for semiconductors, 36.0% for displays, 25.9% for steel, and 25.0% for petrochemicals. The drop in semiconductor exports alone accounted for over half the decrease in total exports (52.4%).

Analysts blamed the poor semiconductor performance on a combination of dwindling investment demand amid predictions of an economic slump, together with reduced demand for non-face-to-face interaction.

Another factor cited in the lower export numbers was the simultaneous decline in export volumes and unit costs since October 2022.

The phenomenon of export volumes being lower than the same period the year before for three or more months is seen as unusual. Indeed, it is the first time this has happened since the early COVID-19 pandemic months from April to August 2020.

According to KITA, an analysis of the 9.9% decline in exports for the final quarter of 2022 found volume factors to account for 55% and unit cost factors for 45%. In the case of semiconductors, export dollar value for that quarter was down by 25.8% while volumes increased by 4.8%, indicating that a considerable portion of the export decline (around 30%) was due to lower unit costs.

KITA predicted that a recovery in semiconductor exports would begin during the second half of 2023 or later. This was based on forecasts by major market research institutions such as Gartner, which have estimated that memory semiconductor business conditions will start improving by the final quarter of 2023 for DRAM and early next year for NAND flash.

KITA also foresaw that the “unit cost recovery will take some time, in light of reduced demand in mobile devices and other downstream industries as well as stockpile accumulation.”

At the same time, it also said that semiconductors were “expected to gain some momentum from a recovery in unit costs amid the effects of increased semiconductor export volumes and China’s [economic] reopening.”

KITA predicted the export slump may continue throughout the first half of the year. This was based on projections of only a limited recovery in trade volumes, with a predominant trend of decline in the global economy through June.

“Given that South Korea’s exports are intermediate goods-centered and have tended to fluctuate beyond the trends in global trade with every economic crisis, they are expected to show a flexible recovery in response to changes in external conditions this year, including China’s economic recovery capabilities and the possibility of the Russia-Ukraine war subsiding,” the association said.

Jeong Man-ki said, “From a short-term perspective, there need to be improvements in financial conditions so that exporting businesses do not collapse amid the business cycle fluctuations.”

“From a medium-term perspective, our task is to create a domestic business environment that is at least on par with other countries through increased domestic investment so that our export base is strengthened,” he added.

He went on to say the long-term focus should be on “increasing our fertility rate in order to sustain the export industry base.”

By Kim Young-bae, senior staff writer

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