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Plunging exports, widening trade deficit bode ill for Korean economy

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Shipping containers are stacked at a pier in the nation's southeastern port city of Busan, Wednesday. Yonhap
Shipping containers are stacked at a pier in the nation's southeastern port city of Busan, Wednesday. Yonhap

Recovery of consumption, Chinese economy picked as key factors

By Lee Min-hyung

The Korean economy is losing steam fast, with its twin engines ― exports and domestic demand ― falling at the same time. In particular, plunging exports and the widening trade deficit are boding ill for the Korean economy, various data showed Thursday.

According to the Ministry of Trade, Industry and Energy, exports in November reached $51.91 billion (67.5 trillion won), down 14 percent from a year earlier.

Exports had been on the gradual rise for 23 months since November 2020, but dropped by 5.7 percent for the first time in September and ended up widening their losing streak last month.

The accumulated exports between January and November, however, rose by 7.8 percent, and came in at $629.1 billion. This instance marks the first time that the figure for the first 11 months combined topped $600 billion.

Despite the sluggish exports, imports increased by 2.7 percent on growing energy costs, according to the ministry.

The nation's trade balance also reported a deficit of $7.11 billion last month. It has been in a deficit for eight consecutive months, which is the longest monthly trade deficit in 25 years since the 1997 Asian financial crisis.

The accumulated trade deficit for the first 11 months combined here soared to $42.56 billion. The ministry shared a murky outlook on exports for December.

"The falling exports in November are attributable to declining demand for key export items ― such as semiconductors, petrochemical and steel products," Industry Minister Lee Chang-yang said.

Other data also showed that the Korean economy will face a tough time for the time being.

The Bank of Korea (BOK) said Thursday that the economy grew 0.3 percent during the third quarter from a quarter earlier, though the rise in private consumption and chip equipment investments offset the dwindling export performance here.

The BOK expected Korea to attain its annual GDP growth target of 2.6 percent despite possible contraction in the fourth quarter.

Finance Minister Choo Kyung-ho also said that the economy is standing at a critical juncture amid growing woes over a possible recession.

"Production and exports are declining and fears of recession are showing signs of escalating here," Choo said Thursday during a meeting with leaders of the nation's small and medium-sized enterprises.

Experts said the economy will likely fall into a slump, but multiple economic indexes show that it is too early to predict the possible arrival of an economic crisis here.

"The economy is feared to enter a phase of recession amid households' escalating interest burden and lukewarm sentiment in the manufacturing sector," said Jung Won-il, an economist at Yuanta Securities.

He expected the monetary authority to shift its policy stance quickly due to growing concerns over a recession.

"With the economy entering a recession faster than expected, the central bank is forecast to promptly shift its monetary policy stance," the economist said. Despite recession woes, it is premature to discuss another potential economic crisis when considering a set of indexes ― such as foreign exchange reserves, he added.

Recent data from Statistics Korea also sent a negative signal to the economy. The industrial output in October fell by 1.5 percent from a month earlier. This was the biggest decline in 30 months since April 2020 when the COVID-19 pandemic hit the economy.

Retail sales also fell by 0.2 percent during the same period on weak consumption in durable goods and clothing. Despite the double drop in industrial output and retail sales, facility investments remained unchanged, according to the statistics authority.

The authority said the economy will face growing uncertainty down the road.

"Exports and the manufacturing sector will likely report sluggish performance due to such downside factors as high prices and soaring interest rates," said Eo Woon-sun, an official at the statistics agency. "The key focus should be on whether consumption here will be able to recover and the Chinese economy can bounce back."

Lee Min-hyung

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