(Bloomberg) -- South Korea posted a record trade deficit in January as exports slumped in response to deteriorating global semiconductor demand and persistently elevated energy prices.
The shortfall swelled to $12.7 billion, almost triple the month-earlier figure, as exports dropped 16.6%, data released by the trade ministry showed Wednesday. Shipments of semiconductors plunged 44.5%, while total imports fell 2.6%.
Sluggish exports were at the core of the Korean economy’s contraction in the final three months of last year and may persist for months to come as global consumption slows. Confidence among Korean firms that sell abroad is low and industrial production remains weak as manufacturers adopt a cautious outlook.
Korean exports are a major barometer of global trade as the nation produces key items such as chips, displays and refined oil that straddle supply chains. It is also home to some of the world’s largest semiconductor and smartphone makers, and a major downturn is hurting those industries.
The world economy is slowing as a result of rising interest rates to tackle inflation, as well as Russia’s ongoing war in Ukraine that has fueled oil and food prices. China also continues to struggle to rebound following the easing of its Covid restrictions.
China’s downturn and the drop in semiconductor prices were among major factors hurting Korean trade’s bottom line, along with an increase in energy imports, Finance Minister Choo Kyung-ho said in a statement.
Global demand is likely to remain subdued this year while household debt, fiscal tightening and high borrowing costs constrain Korea’s domestic recovery, Fitch Solutions said in a note. The economy, as a result, will probably grow 1.5% this year, less than the 1.7% forecast by the Bank of Korea, it said.
A turnaround for Korean exports may come from China if the world’s second-largest economy succeeds in reviving its growth engine after an extended period of Covid restrictions. China is the largest buyer of Korean goods that mostly get reassembled to be shipped elsewhere.
Resilient exports were a key reason why the BOK was confident the economy could withstand policy tightening over the past 18 months. With the benchmark rate now at 3.5% — the highest since 2008 — Governor Rhee Chang-yong increasingly sees economic concerns coming to the fore, while the bank keeps policy tight to prevent inflationary pressure from rebuilding.
--With assistance from Myungshin Cho.
(Adds semiconductor figures, finance minister’s comments.)
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South Korea’s Export Decline Persists as Global Economy Weakens - BNN Bloomberg
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