SEOUL - South Korea posted a record trade deficit in January as exports weakened further, raising concerns that the economy may fall into recession amid deteriorating semiconductor demand and persistently elevated energy prices.
The shortfall swelled to US$12.7 billion (S$16.7 billion), almost triple the month-earlier figure, as exports slumped 16.6 per cent, official data showed on Wednesday. Shipments of semiconductors plunged 44.5 per cent, while total imports fell 2.6 per cent.
South 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.
Sluggish exports were at the core of the South Korean economy’s contraction in the final three months of 2022 and may persist for months to come as global consumption slows. Confidence among South Korean companies that sell abroad is low, and industrial production remains weak as manufacturers adopt a cautious outlook.
“The chance for another economic contraction has got greater,” said HI Investment & Securities economist Park Sang-hyun. “The deficit hurts not only companies’ bottom line, but also consumer spending. It certainly weighs on the economy.”
Citigroup forecasts a mild recession this winter in South Korea.
Resilient exports were a key factor in the Bank of Korea’s confidence that the economy could withstand policy tightening over the past 18 months. The trade numbers bolster the case for an interest rate pause when the board meets later in February.
With the key rate now at 3.5 per cent – the highest since 2008 – the central bank’s governor Rhee Chang-yong increasingly sees economic concerns coming to the fore, while the bank wants to keep policy tight to prevent inflationary pressure from rebuilding.
SK Hynix, South Korea’s second-biggest chipmaker, reported its biggest quarterly loss on record on Wednesday, a day after Samsung Electronics said its operating income dropped by 97 per cent from a year earlier.
The world economy is slowing as a result of rising rates to tackle inflation, as well as Russia’s ongoing war in Ukraine that has fuelled oil and food price rises. China is also yet to fully recover from its Covid-19 restrictions.
China’s downturn and the drop in semiconductor prices were among major factors hurting South 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 in 2023 while household debt, fiscal tightening and high borrowing costs constrain South Korea’s domestic recovery, Fitch Solutions said in a note.
A turnaround for South 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-19 restrictions. China is the largest buyer of South Korean goods, which mostly get reassembled to be shipped elsewhere. BLOOMBERG
