South Korea posts record trade deficit on inflation, weaker won

SOUTH KOREA posted a record trade deficit in August as the won hovered around a 13-year-low and global energy prices remained elevated, driving up import costs and squeezing exporters.

The deficit almost doubled to US$9.5 billion, the most in data going back to at least 2000, from US$4.8 billion in July, according to data released on Thursday (Sep 1) by the trade ministry. Meanwhile, exports rose 6.6 per cent, exceeding economists' forecast of 5.6 per cent. Imports jumped 28.2 per cent.

Korea is headed for its first annual trade deficit since 2008 as elevated energy and commodity prices drive up import prices, a phenomenon that's also plaguing other export-oriented countries as Russia's war on Ukraine drags on.

Supply chain disruptions, partly worsened by Covid lockdowns in China, have also contributed to inflationary pressure. A series of interest-rate hikes by the Federal Reserve to rein in US inflation have weighed on other currencies, including the won, making imported goods more expensive for their economies.

Korea's trade performance is viewed as an important barometer of international demand as the country manufactures key items such as chips, displays and refined oil for the world economy.

Resilient export growth has been a major factor underpinning the Bank of Korea's confidence in raising rates. Governor Rhee Chang-yong joined global central bank chiefs at Jackson Hole over the weekend in reaffirming a willingness to keep tightening monetary policy until inflation eases meaningfully.

Adding to export woes is a gradual decline in global demand for semiconductors, the biggest cash cow for Korea. Meantime, the nation's automakers are facing headwinds as the US "Inflation Reduction Act" excludes them from tax breaks aimed at shoring up American electric-vehicle makers.

While the outlook for exports remains clouded, consumption has been a key support for the Korean economy as Covid regulations are loosened.

A separate update from the Bank of Korea on gross domestic product showed the economy expanded 0.7 per cent last quarter from the previous 3 months and 2.9 per cent from a year earlier, unchanged compared with an earlier estimate.

Today's report also showed:

  • Exports adjusted for working-day differences rose 2.2 per cent in August from a year earlier.
  • Semiconductor shipments, the biggest driver of income, fell 7.8 per cent.
  • Total automobile shipments advanced 35.9 per cent, while exports of rechargeable batteries climbed 35.7 per cent.
  • Imports reached a record amount as the purchases of energy and commodities jumped, the ministry said. BLOOMBERG

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