South Korea export gains point to resilience in global demand

Shipments to the US jumped 29.2 per cent from a year earlier, while exports to the EU gained 23.5 per cent. PHOTO: BLOOMBERG

SEOUL BLOOMBERG) - South Korea’s exports grew at a faster-than-expected pace in May, suggesting global demand remains resilient in the face of war in Ukraine and a slowing economy in China.

Overseas shipments advanced 21.3 per cent in May from a year ago, helped by strengthening car exports, trade ministry data showed on Wednesday (June 1), exceeding economists’ forecasts for an 18.4 per cent gain. Exports to China rose 1.2 per cent in May after dropping a month earlier. Total semiconductor shipments increased 15 per cent. 

While the monthly figure was stronger than forecast, the gains were inflated by two extra working days in the month compared with a year earlier. Average daily shipments rose 10.7 per cent, for the smallest increase since January 2021, continuing a trend of stabilisation in double-digit year-over-year gains. 

Still, the result shows global trade is holding up better than expected as the pandemic recovery continues, despite the impact of Russia’s war in Ukraine, surging commodity prices and supply snarls exacerbated by China’s lockdowns.

“The export growth is impressive given the slowdown in its largest market China and a high base of comparison,” said Ho Woei Chen, economist at United Overseas Bank in Singapore. “External demand looks to be supported especially as China’s Covid situation eases.” 

The risks of higher global inflation and withdrawal of policy accommodation on consumer demand still need to be monitored closely going forward, Ms Ho added.

South Korea’s manufacturers are positioned widely across global supply chains and the nation’s export data comes out ahead of peers, providing an early pulse check on the strength of world trade.

An economic recovery in the US has helped shore up South Korean exports, with demand for technology products such as displays and semiconductors staying resilient. Refined-oil exports have also gotten a boost from higher energy prices.

With an economy heavily reliant on trade, South Korea needs exports to remain strong to maintain economic momentum and provide room for the Bank of Korea to stick to its path of policy normalisation. The central bank has raised rates five times since last summer, with the governor signaling more hikes to come.

Demand has been weakening in Europe and China since the Russian invasion and the lockdowns in China under its Covid zero policy. As those restrictions in Chinese cities are eased, trade with China should regain further momentum. 

“Exports to regions where economies are reopening, including the US, EU, the Middle East and Central/South America, are all growing too, making it too early to determine that exports are cooling just yet,” said Ha Keon-hyeong, an economist at Shinhan Investment Corp.

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