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Korea posts longest losing streak in monthly trade deficit in 25 years since 1997
By Anna J. Park
With a seven-month consecutive trade deficit logged this year, Korea's exports fell in October for the first time in two years, sending more warning signs to the Korean economy. The decline in the monthly export volume is attributed to various factors, ranging from the global economic slowdown, China's COVID-19 lockdowns, the decrease in the price of memory chips and supply chain disruptions.
According to the latest data released by the Ministry of Trade, Industry and Energy, Korea's export volume posted $52.4 billion in October, which is a 5.7-percent decrease from the same month last year, while the country's imports logged $59.1 billion, a year-on-year increase of 9.9 percent. It is the first time in 24 months that Korea's monthly export volume recorded a decrease compared to the same month of the previous year.
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Actually, the country's exports have been faltering throughout this year. Monthly trade deficits have been continuing for seven consecutive months, amounting to the longest losing streak in 25 years since 1997. The trade deficit accumulated during the past seven months stood at about $35.5 billion, which far exceeds the previous record-high trade deficit of $20.6 billion logged in 1996.
While the country's increase in year-on-year imports is mainly due to the global energy price hikes, such as of crude oil, gas and coal, the decline in the export volume has been largely affected by the downturn in the global sales of chips, displays, petrochemical items and steel products.
Specifically, the export of semiconductors ― the largest export item for the Korean economy ― stood at $9.23 billion in October, the first time in 17 months that it recorded below $10 billion. The export of semiconductors has been logging a losing streak for three consecutive months since August of this year. Other major export items, such as computers, electronic appliances, petrochemicals and steel, particularly posted major year-on-year decreases, as they each logged year-on-year falls of 37.1 percent, 22.3 percent, 25.5 percent and 20.8 percent, respectively. Only automobiles, one of major export items of Korea, and secondary batteries, logged double-digit year-on-year increase rates of 28.5 percent and 16.7 percent, respectively, in their export volumes.
By region, the largest year-on-year decline in Korea's exports was China. The country's exports to China in October stood at $12.1 billion, a 15.7-percent fall compared to the same month last year. They have been declining for the past five consecutive months, since June.
Common problem for energy-importing countries
Market experts shared the understanding that the fall in global demand is a direct cause of the country's decline in exports, but is a phenomenon currently affecting many countries other than Korea as well.
"The issue of the aggravated trade balance is a common problem for many countries, and is not confined only to the Korean economy. Countries with strong manufacturing industries with large energy import reliance are showing similar patterns in their trade balances. Compared to some other countries like Japan and France, Korea's exports are at a better level," Song Joo-yeon, an analyst at DAOL Investment & Securities, explained.
The analyst added that it is a burden factor that Korea is posting a seven-month consecutive trade deficit, the first time since the Asian Financial Crisis in the late 1990s.
"As the WTO has lowered its outlook on next year's global trade growth rate to 1.0 percent from its previous outlook of 3.4 percent, market participants need to be more cautious about the trade cycle worsening amidst the growing possibility of an economic recession," the analyst said.
Another market analyst pointed out that the continuing trade deficit is expected to add more pressure on the won falling in value against the dollar.
"Although a worsening trade deficit is a common phenomenon being experienced by some countries with strong manufacturing sectors and high energy import dependency, the mounting pressure on the won-dollar exchange rate is likely to continue if the trade deficit continues," Lee Da-eun, analyst at Daishin Securities, said.
Market experts forecast that the trend of declining exports is likely to continue until the first half of next year.
"Considering the global economic outlook, the weak performance of the country's exports is likely to continue until the first half of next year," Lim Hye-yoon, an economist at Hanwha Investment & Securities, said.
