South Korea’s export slump deepens on drag from global slowdown, chips

SOUTH Korea’s export slump deepened in February, as slowing global demand and a plunge in chip prices weighed, clouding the outlook for an economy already hit by high-interest rates and elevated inflation.

Working-day shipments on average fell 15.9 per cent from a year earlier, the biggest drop since June 2020, according to data released on Wednesday (Mar 1) by the customs office.

The slide in exports is eroding confidence in South Korea’s ability to rebound from an economic contraction last quarter. It also points to an ongoing slowdown in global trade and tech-sector demand that will keep concerns smouldering over possible recessions in key economies.

Headline exports offered a less gloomy view, largely due to seasonal holiday factors that helped prop up the figures. The value of shipments dropped 7.5 per cent, helped by more working days in February this year. Still, that was less than economists’ forecast for an 8.8 per cent decline and around half the decline in January.

Overall imports gained 3.6 per cent, resulting in a trade deficit of US$5.3 billion. South Korea has reported a monthly shortfall since March last year, as surging energy and commodity prices caused import costs to swell.

Shipments of semiconductors, the biggest contributor to the country’s exports, plunged 43 per cent from February 2022 due to sharp falls in selling prices. Exports of automobiles jumped 47 per cent, helping the nation trim the trade deficit from a record-high level in January.

South Korea is home to some of the world’s biggest semiconductor and smartphone makers, including Samsung Electronics, making its export figures a key barometer of global trade.

Exports to China, the country’s biggest trading partner, dropped 24 per cent year on year; chip shipments for mobile phones fell along with real-estate-related machinery. The figure also benefited from a larger number of working days in February.

Shipments to Japan slipped 4.9 per cent, dragged down by petrochemical exports.

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Worldwide demand is likely to remain weak as central banks continue their struggle against inflation and Russia’s war on Ukraine drags on. The Bank of Korea (BOK) is keeping the option of further tightening open, after raising its benchmark rate by 300 basis points since 2021.

Growing trade shortfalls are adding to pressure on the won, fuelling concerns among policymakers about a rekindling of inflation as the nation relies heavily on imports of food and energy.

The BOK last week lowered its forecast for economic growth this year to 1.6 per cent from 1.7 per cent. A property-market downturn and trade weakness were among reasons cited for the reduction. BLOOMBERG