South Korea’s exports fell at a more moderate pace in August, offering signs of improvement in demand for semiconductors and adding to evidence of a nascent recovery in global trade, while a separate report indicated manufacturers are still struggling.
(Bloomberg) — South Korea’s exports fell at a more moderate pace in August, offering signs of improvement in demand for semiconductors and adding to evidence of a nascent recovery in global trade, while a separate report indicated manufacturers are still struggling.
Exports slipped 8.4% from a year earlier, according to data released Friday by the trade ministry. That compared with economists’ forecasts for an 11.8% drop and July’s 16.4% decline. Imports fell 22.8%, resulting in a trade surplus of $870 million.
Policymakers are hoping exports will help Korea’s economy grow this year in line with current forecasts after authorities repeatedly trimmed estimates in recent months in light of disappointing data. The figures will be parsed by other trade-reliant nations that see Korea as a barometer for international commerce.
The trade ministry in a statement highlighted a 15% increase in chip shipments compared with July as a positive sign, even though they fell 21% from a year earlier. Finance Minister Choo Kyung-ho said last week he was expecting an export recovery toward the end of this year.
Cho Chuel, an analyst at the Korea Institute for Industrial Economics & Trade, pointed to automobiles, saying they are helping tide Korean exports over at a time questions linger over semiconductor demand.
“Exports will ultimately depend on what would happen to chip prices and demand,” Cho said. “If chip prices turn around, exports could return to growth. But the question is China, from which demand isn’t strong yet.”
Separately, South Korea’s flash Purchasing Managers’ Index fell to 48.9 in August, signaling that the nation’s manufacturers “saw a sustained deterioration in operating conditions,” according to Trevor Balchin, economics director at S&P Global Market Intelligence.
Weakening economic conditions in China, the world’s second-biggest economy, will continue to be a point of concern. Slack demand in China is one factor behind a slump in global semiconductor prices that has cut into earnings at major Korean exporters such as Samsung Electronics Co. Korean exports to China dropped 20% from a year earlier, while exports to the US edged up 2%.
The World Trade Organization said last week that merchandise trade volume turned higher in the second quarter after two periods of decline, but remains below trend.
Korea is seen as a bellwether for global trade because it exports goods that make their way into a wide variety of products, including machines, displays and refined oil. Global activity has been restrained by rising interest rates and China’s struggle to rebound from Covid lockdowns.
Global central banks are likely to continue their fight against inflation for some time to come, putting pressure on demand with restrictive monetary policies. The Bank of Korea has held policy steady in recent months while keeping the door open to potential further tightening after raising its benchmark rate by 300 basis points since 2021.
What Bloomberg Economics Says…
“The data will probably come as a relief to the Bank of Korea, which has staked its 2023 growth forecast on a shipments recovery in the second half of the year.”
—Hyosung Kwon, economist
To read the full report, click here
Policymakers expect Korea’s economy to grow 1.4% this year as they maintain their optimism that trade will improve toward the end of the year. President Yoon Suk Yeol in July highlighted exports as a key generator of jobs for the country and called for government support for exporters.
Korea’s exports are driven largely by the country’s ability to export technology products, an area where competition with China is growing. The growth in Korea’s semiconductor inventories eased in July for a second month, signaling a slow pick-up in global demand for memory chips.
(Updates with more details and an economist comment)
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