SEOUL – South Korea is on track for record export shipments in 2022, but grim economic conditions at year-end combined with a record trade deficit suggest a challenging 2023 ahead.
Given the nation’s status as a G10 economy, manufacturing powerhouse and leading tech supplier, South Korea’s trade figures often serve as a barometer for wider global economic trends.
On December 10, South Korea posted a record high in annual exports of US$644.4 billion, exceeding 2021’s previous record by 6.8%.
The impressive figure reflects strong sales early in 2022, a trend that has weakened in more recent months. According to the Ministry of Trade, Industry and Energy (MOTIE), overseas shipments were down year-on-year in both October and November.
In October, they fell -5.7%, and then plunged -14% in November – the steepest decline seen since May 2020, when the unprecedented impact of the Covid pandemic rocked global economies.
In terms of products, MOTIE’s data shows that exports of semiconductors – South Korea’s largest export item – were down 29.8% year-on-year, while petrochemical products and steel sagged 25% and 10.6% respectively. One bright spot was autos, which surged 31%.
In terms of geographies, the East was a particularly weak spot, with exports to partially locked-down China down -25.5% and to ASEAN -13.9%. The West was brighter, with exports to the US up 8% and to the EU a marginal 0.1%.
MOTIE blamed the downbeat trends on the global economic slowdown and aggressive monetary tightening by major economies, as well as a domestic truckers’ strike. Another central issue is the “semiconductor supercycle” which has been on a downturn since this summer after a long surge.
Chips were responsible for some 20% percent of Korea’s total exports last year, but in November, that proportion had shrunk to 16.3%, the data showed. Prices of DRAM memory chips were down 40% year-on-year in November.
A South Korean trade official told Yonhap News Agency that sagging demand for electronics items and excess chips inventory are problematic, but anticipated an upturn in the second half of 2023, after sector players reduce facility investments and adjust supply.
Government data showed DRAM memory prices plunged more than 40% in November from a year earlier.
According to the Korea International Trade Association, China accounted for 41% of Korea’s semiconductor exports from January through September, a slight rise from 39.3% a year earlier. The US, by contrast, took just 6.5% of Korea’s chips.
Chip war woes
Big geopolitical uncertainties hang over Korean chipmakers Samsung Electronics and SK hynix – respectively the largest and second-largest memory makers in the world – as the US cranks up export bans on advanced chips and chip-making equipment to China.
In response, China is prioritizing domestic semiconductor manufacturing, although its laggard sector is reputedly still generations behind leading-edge South Korean and Taiwanese chipmakers.
In terms of investments in China, Samsung only makes NAND memory, but SK hynix faces bigger uncertainties. It has major DRAM plants in the country and finalized the acquisition of China’s Key Foundry in June.
Though the Korean makers have won a one-year grace period from Washington’s measures, in October, SK hynix admitted in a conference call with investors that it had a contingency plan to exit its Chinese investments, either by sale, and/or by relocating chip-making facilities to Korea.
Ukraine war risks
More bad trade news was released today by the Korea Customs Service, which showed South Korea recorded a record $47.46 billion trade deficit for the year through Saturday. The figure exceeded forecasts and is over double the previous record annual deficit of $20.62 billion, dating back to 1996.
Soaring energy prices sparked by the war in Ukraine – notably of energy products, of which South Korea is a net importer – have ballooned Korea’s deficit. Imports of oil, gas and coal shot up 72.7% year-on-year, hitting a whopping $180.4 billion, according to the data.
There is little relief in sight. Neither Kiev nor Moscow are close to achieving their stated aims on the battlefield, meaning the war and inflated energy prices are likely to endure in 2023.
Kiev has stated on multiple occasions that it will not cease fighting until it has recaptured the vast swathes of territory seized by Russia, though some believe that Western countries may apply leverage to downgrade these aims.
With so many uncertainties and downbeat year-end expectations, the Bank of Korea has lowered its growth outlook for 2023 to 1.7%, down from the 2.1% it had predicted in the third quarter.
Still, there is one potential upside.
In the face of faltering growth and nationwide protests, and with a new leadership team in place under President Xi Jinping following November’s Party Congress, China has reversed its “zero-Covid” policy and is now in economic stimulus mode. A spurt of growth in Korea’s largest market could thus be a boon for Korean exporters, apart from chipmakers.
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