Are rebounding exports a sign of full recovery for S. Korean trade?

Posted on : 2023-11-02 16:50 KST Modified on : 2023-11-02 16:50 KST
With the base effect still showing in figures after last year’s slump, some say it’s too soon to call
Containers holding exports and imports fill Busan Port. (Yonhap)
Containers holding exports and imports fill Busan Port. (Yonhap)

Korea’s exports have recovered from a year of stagnant growth thanks to improvements in the semiconductor sector and exports to China. However, some observers say it is too early to see this as a full recovery, as figures are still seeing the base effect of the severe slump a year ago.

According to the Ministry of Trade, Industry and Energy, exports in October rose 5.1% from the same month in 2022, breaking a year-long slump in exports.

The average daily export value (US$2.6 billion), which reflects the number of working days, was 6.55% higher than October 2022 (US$2.44 billion).

This also marked the fifth consecutive month that Korea was in the black for net exports. This is the first time in 20 months since February 2022 that exports have increased and Korea has recorded a trade surplus.

Most notably, exports of memory semiconductors, South Korea’s largest export item, are showing signs of improvement. Semiconductor exports fell 3.1% year-on-year in March, but the rate of decline has been improving every quarter.

This is due to the effects of memory production cuts and increased demand for new smartphones and high-value products for artificial intelligence servers.

Conditions also improved in October as spot-fixed prices for DRAM and NAND memory rose. “The improving trend in semiconductor exports is expected to expand gradually going forward,” the ministry said.

Exports to China are also improving, albeit at a slower pace. Exports to China have been in the red for 18 consecutive months since May 2022, but in October, exports to China reached US$11 billion, marking the third consecutive month they were over US$10 billion since August. The rate of decline in exports to China (-9.5%) slowed to single digits in October.

Assessing a turnaround in exports in the span of one year is impossible without considering the impact of base effects.

Exports plunged 10% year-over-year in the final quarter of 2022, starting with a 5.8% decline in October. The increase seen in October 2023 (5.1%) makes up for the decline in 2022.

This is why analysts say that even if exports increase by 10% every month until the end of the year, it’ll be difficult to call this year’s performance a strong recovery from the slump seen in 2022.

The government is stressing that the recovery is more than an illusion of the base effect, citing the fact that other major exports besides semiconductors are doing well.

In October 2023, automobile exports increased for the 16th consecutive month, and other major exports such as general machinery, home appliances, ships, and displays increased for more than three consecutive months.

Petroleum products, one of the top four export items, also turned positive for the first time in eight months.

“If the semiconductor and computer markets had recovered, we would have recorded the best October performance in history,” said Kim Wan-ki, the head of the office of international trade and investment at the Trade Ministry, adding that Korea’s main exports are “showing quite solid export improvement.”

The government is optimistic that the stable upward export momentum will continue for some time.

Yet outside the government realm, there are a number of civilian experts who are more circumspect about the country’s trade performance.

“Considering the base effect, it is still too early to judge that exports are in a full-fledged recovery,” said Joo Won, the director of the economic research department at the Hyundai Research Institute.

“There are many adverse factors such as the high interest rate and oil price environment and uncertain external variables, so we need to stand back and inspect the strength and speed of the rebound for in the long run,” he added.

By Kim Hoe-seung, senior staff writer

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