Concerns are growing over the long-term prospects for Korea’s exports, which have supported its economic growth in recent years amid sluggish domestic demand and industrial activity.
Mainly on the back of a rise in global trade, Asia’s fourth-largest economy had extended the streak of on-year monthly increases in exports to 18 months before its outbound shipments fell 1.5 percent from a year earlier in April.
Trade officials attributed the decline partly to a base effect from an unusually high increase in exports in April last year, when local shipyards sent out offshore facilities worth $5.4 billion.
The country’s exports seem on track to increase by double digits in May, given recent customs data that showed its outbound shipments grew 14.8 percent on-year to $29.1 billion in the first 20 days of the month. Average daily exports, which reflect working days, rose 10.4 percent to $2.24 billion.
But experts say many downside risks will make it difficult for the country’s exports to remain on upward trend in the months to come.
(Yonhap)
With its key manufacturing sectors except for semiconductors losing competitiveness, Korea has seen its export growth momentum weakening this year.
The rate of on-year growth in exports, which reached 22.3 percent in January, remained at 3.3 percent in February and 6.1 percent in March before taking a negative turn last month.
Recent data from the World Trade Organization showed Korea’s export growth slowed in the first quarter of the year to rank eighth among the world’s top 10 exporters.
The country shipped abroad $145.4 billion worth of goods in the cited period, up 10.1 percent from a year earlier. It saw exports grow 14.7 percent on-year in the first three months of last year, topping the list of the 10 largest exporters.
What is particularly concerning is Korea’s export growth has lagged behind the increase in global trade. Export growth in the 71 countries that account for 90 percent of world trade was 13.8 percent on average in the January-March period of the year, up from 10.2 percent a year earlier.
Among the top 10 exporters, France recorded the fastest growth rate of 20.2 percent, followed by Belgium at 19.5 percent, Italy at 19.3 percent, Germany at 18.8 percent and the Netherlands at 18.6 percent. Exports by China and Japan expanded 14.3 percent and 10.2 percent, respectively.
The growth trend of Korea’s outbound shipments looks more fragile, given its increasing reliance on semiconductors.
Semiconductors’ proportion of the country’s exports has grown steadily, from 12.6 percent in 2016 to 20.1 percent in the first four months of 2018. Excluding the shipment of memory chips, Korea’s export growth rate was just 0.4 percent in the January-April period.
Experts say Korea’s exports are likely to slow further as its manufacturing exporters are struggling to cope with intensifying competition from foreign rivals, the strengthening won and rising labor costs.
“Except for chipmakers, most of the country’s manufacturing industries are being squeezed between Chinese and advanced nations’ competitors,” said Min Sung-hwan, an analyst at the Korea Institute for Industrial Economics and Trade, a state-funded think tank.
Chinese companies have rapidly caught up with Korean firms in high-tech areas as well as traditional manufacturing sectors, reducing Korea’s global market shares of smartphones, home appliances, flat panel displays and ships.
The strengthening won has been weakening the price competitiveness of Korean companies against their Japanese rivals, particularly in the auto and auto parts sectors.
The won-dollar exchange rate, which averaged 1,130.8 won per dollar last year, has been hovering around 1,070 won in recent weeks.
The won is expected to further appreciate against the greenback as Seoul is set to reveal records on its foreign exchange market interventions starting in March next year as part of efforts to enhance the transparency of its currency policy.
A possible dramatic easing of geopolitical risks on the Korean Peninsula in the wake of the summitry on dismantling Pyongyang’s nuclear arsenal would also help boost the value of the won.
“The possibility cannot be ruled out that the won-dollar exchange rate will fall to the 900-won level last seen in 2008,” said Ju Won, a researcher at the Hyundai Research Institute, a private think tank.
He warned that the steep appreciation of the won could wreak havoc to the country’s exports unless its companies strengthen competitiveness.
A stronger won is expected to have a more negative impact on small and medium-sized companies, which mostly depend on cheaper prices to remain competitive in overseas markets. Exports by SMEs grew 9.5 percent on-year in 2017, compared with 19.4 percent for large companies.
US President Donald Trump’s protectionist measures and the trade friction between Washington and Beijing are also threatening to hurt Korea’s outbound shipments.
Analysts say Korea remains more vulnerable than other major car-producing countries to possible new tariffs to be imposed by the Trump administration on imported vehicles.
A deal between Washington and Beijing to reduce the US trade deficit with China could result in taking Chinese business away from Korea and other countries.
Domestically, Korean manufacturers have been troubled with anti-business policies pursued by the Moon Jae-in administration, which have increased production costs, pushing them to move production facilities abroad.
With employment continuing to worsen and industrial output slowing down, a slump in exports would cloud the prospect of the Korean economy growing 3 percent this year as predicted by the government.
By Kim Kyung-ho
(
khkim@heraldcorp.com)