Containers stacked on the dock at Busan, South Korea's leading port. Photo: AFP / Seung-il Ryu / NurPhoto

SEOUL – “Pandemic? What pandemic?” That would be a reasonable inquiry for anyone looking over South Korea’s latest macro data.

The globally plugged-in economy has just posted record annual export earnings for 2021, a record trade volume, as well as its 13th consecutive annual trade surplus.

GDP is also looking up. Once figures are in, the authoritative Korea Development Institute, or KDI, anticipates annual GDP growth of 4.0% in 2021, led by exports and equipment investment. The OECD has almost the exact same forecast: 4.0% for the just-passed year, on the back of strong export growth and improved investment.

Micros, however, are less upbeat.

Gloom over the high street economy

The exuberance one might expect from an export sector grounded in blue chip stocks has not been reflected in the benchmark KOSPI index. The key stock market started 2021 on January 4 at 2944.45 points and ended it – after hitting a record high of 3,305.21 in June – at a far-from-stratospheric 2986.26 points at close of business on Monday, January 3, 2022.

And if South Korean punters – even given the fact that they are players in a consistently undervalued market – are downbeat, things are even less rosy at ground zero. 

The KDI, in its economic forecast published on November 11, anticipated growth in 2022 to take place on the back of “a recovery in private consumption” that will “continue on full steam.”

However, there has been a blip in the national Covid exit – which had been anticipated on high vaccination rates and the achievement of herd immunity – since the report’s publication.

On December 18, with daily Covid-19 infections, hospitalization and death rates setting records, Seoul indefinitely halted phased plans for a post-Covid-19 normalization by the end of January. Adding insult to injury for a pandemic-weary populace, at year’s end, social distancing rules were extended for another two weeks. The next decision is expected on January 16.

One does not need to walk far in central Seoul, or in one of its innumerable suburbs, to see an imdae (“for rent”) sign. There is widespread gloom among merchants – especially in the formerly thriving food-and-beverage and after-hours-entertainment sectors.

Meanwhile, the world continues to fixate on Squid Game, the violent Netflix fantasy sensation inspired by the South Korean citizenry’s stratospheric levels of private debt.

If any further sign was needed of the divergence between the domestic economy and its export sector, the latest data shows that 2021 was a boom year.

Samsung Electronics is a major supplier of memory chips. Photo: iStock

Exports light up

National exports hit a record high of US$644.54 billion in 2021, well north of the $512.5 billion seen in 2020 – a 25.8% year-on-year gain, according to data from the Ministry of Trade, Industry and Energy. The year 2020’s numbers smashed the previous record, set in the pre-Covid year of 2018, when exports stood at $604.9 billion.

Imports in 2021 also rose 31.5% year-on-year to reach $615.05 billion in 2021, granting a comfortable trade surplus of $29.49 billion for the 13th consecutive year.

The end result? Another national record for total trade volume: $1.26 trillion last year.

The country’s leading trade item, consistently worth about 20% of exports, was semiconductors; Chip shipments rose 29% year-on-year in 2021, filling coffers with a cool $127.98 billion.

The world’s leading memory chip manufacturers, Samsung Electronics and SK hynix, have benefitted from Covid-19 and the collateral demand for more capacity in data centers, and more purchases of digital devices for locked-down populaces.

Amid high oil prices, exports of petrochemicals and petroleum products rose by 54.8% and 57.9% respectively, on year. Auto exports were up 24.2%, while steel shipments were up 37%.

Shipments to ASEAN, the EU, India and the United States all hit record highs. Those to China, the largest consumer of South Korean exports, rose 22.9% and were worth $169 billion, while shipments to the US, the number two export destination, rose by 29.4% and were worth $95.9 billion.

The shipments to China, South Korea’s largest trading partner, rose 22.9% on-year to $162.9 billion in 2021, and those to the US jumped 29.4% to $95.9 billion.

Exports to Southeast Asian nations surged 33% to $108.9 billion, while those to the European Union nations went up 33.9% to $63.6 billion, the data showed.

A cargo ship under construction in a shipyard in Okpo, South Korea. Photo: WikiCommons

Macro vs micro

Amid all this good news, why the gloom among so many Kims, Parks and Lees?

For one thing, there is a long-term, consistent national habit of talking down the national economy – both among the chattering classes in the coffee shops and among the opinion formers in the editorial offices of major newspapers.

However, industrial structural issues are, indeed, exacerbating the macro-micro divide.

“Overall, the Korean export and industrial data seem fine because the dependence on semiconductors has become larger – if you look at the export and profit numbers, they are good in semiconductors, specifically in DRAM,” Paul Choi, head of research at securities house CLSA in Seoul, told Asia Times.

“If you look at other industries with more people – like shipbuilding and machinery – it is not doing so well, as there is fierce competition from China, and Korea has lost some competitive edge.”

He noted that the flagship chip sector does not require huge numbers of employees. Meanwhile, as is the case elsewhere across the world, asset prices are rising.

Choi put the underwhelming stock market performance down to prudent government measures.

“Korea was fine in 2021 but in the second half, Korea started tightening earlier than other markets – the Bank of Korea first raised the interest rate of cycle at the end of August, and at a similar time, the government started restricting household loan growth very drastically,” Choi said.

“The Financial Supervisory Commission and the BOK all started to mention that household debt is at a risky level and talked about financial misbalance.”

With retail investors having been overweight in the market prior, the prudential measures sucked money out of stocks.

It is unclear where, amid the currently suppressed spending, capital will flow next.

The ever-bubbly Seoul Metropolitan area property market has, for decades, been Soutgh Koreans’ investment destination of choice, far outweighing local capital markets.

The capital’s real estate markets, and resultant social inequality, are perhaps the hottest political potatoes facing the presidential candidates ahead of the election on March 9 this year.

Meanwhile, the generally upmarket KDI report warned of external risks ahead.

“Externally, the Korean economy may face a delayed recovery if the imbalance in raw material supply and demand and the logistics disruptions prolong, or if the global economy slows down led by China,” the research institute wrote.