Corona-driven Demand Plunge Causes 24% Export Drop... "Trade Deficit Temporary" (Comprehensive Report 2)

Impact of COVID-19 Intensifies... April Exports Down 24.3% YoY
Demand Plunge and Oil Price Drop... Ministry of Trade Calls It a "Global Phenomenon"
Trade Deficit of $950 Million... First Since January 2012
Sung Yun-mo: "Preparing for Post-Corona... Developing New Export Growth Engines"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Bo-kyung] Due to the shock of the novel coronavirus infection (COVID-19), exports last month decreased by 24.3% compared to the previous year. This is the largest decline in about 11 years since May 2009 (-29.4%). As the global spread of COVID-19 intensified, exports in April took a direct hit. The sharp drop in demand from major markets such as the United States and Europe had a significant impact.

According to the Ministry of Trade, Industry and Energy on the 1st, exports in April amounted to $36.92 billion, down 24.3% ($11.86 billion) from the same month last year. This is the largest decline since the global financial crisis in May 2009, which recorded a minus 29.4%. Imports were $37.87 billion, down 15.9% ($7.18 billion) from the same month last year. As a result, the trade balance last month showed a deficit (-$950 million) for the first time in over eight years.

Considering the number of working days (24 days → 22 days), the average daily export amount was $1.68 billion, down 17.4% compared to the same month last year.

Exports Decline in Major Countries and Items... Due to Demand Drop and Oil Price Fall

By country, exports plummeted in major export countries such as the United States (-13.5%), China (-17.9%), ASEAN (-32.9%), European Union (EU, -12.8%), Middle East (-20.7%), Japan (-12.0%), and India (-59.7%).

Among the top 20 major export items, 17 items showed negative growth, reflecting the shockwave of COVID-19. Most items decreased, including semiconductors (-14.9%), general machinery (-20.0%), petrochemicals (-33.6%), automobiles (-36.3%), steel (-24.1%), petroleum products (-56.8%), ships (-60.9%), automobile parts (-49.6%), and displays (-39.1%).

The export slump last month was influenced by the decrease in demand from major markets such as the United States and the European Union (EU) due to the full-scale spread of COVID-19. Demand shrank due to measures such as movement restrictions and factory shutdowns in each country, leading to a decline in exports.

In particular, exports to the EU decreased mainly in automobiles (-21.4%), automobile parts (-53.5%), general machinery (-17.6%), and steel (-33.3%). The EU's average daily export amount recorded $200 million, the lowest since January this year.

The decline in U.S. exports was due to sluggish sales of consumer goods such as smartphones (wireless communication, -63.8%), automobiles (-16.7%), and home appliances (-9.2%). As the spread of COVID-19 accelerated, store closures and restrictions on consumer outings caused exports to plummet. Last month, the U.S. average daily export was $240 million, down 5.6% year-on-year and 21.3% month-on-month.

In the case of ASEAN, the average daily export last month was the lowest since August 2016. The impact of government-imposed operational restrictions and community quarantine measures was significant. Factory shutdowns led to reduced demand for capital goods such as automobile parts (-44.0%) and machinery (-24.0%), and exports of consumer goods such as smartphones (wireless communication devices, -28.3%) and home appliances (-46.6%) also declined.

The decline in export unit prices due to falling oil prices also had an impact. Looking at export unit prices by item, petroleum products decreased by 52.9% compared to last year, and export unit prices of petrochemicals (-29.0%), ships (-38.6%), and steel (-11.9%) also fell significantly.

The Ministry of Trade, Industry and Energy explained that the shortage of working days and the reverse base effect also contributed to the increased export decline. The number of working days in April last year was 24, two days more than this year, and exports recorded the highest level of $48.78 billion for the year.

The ministry explained, "In February and March, exports mainly to China were sluggish, but in April, exports decreased across all regions due to deteriorating conditions in major markets such as the U.S., EU, and ASEAN." It added, "The export slump caused by COVID-19 is a global phenomenon, not just in Korea."

On the other hand, due to the spread of COVID-19, items related to the non-face-to-face industry, home economy (Home+Economy), and K-quarantine industry were positively affected. Biohealth (29.0%) favored Korean quarantine products such as diagnostic kits, and computer exports (99.3%) showed strong performance due to the expansion of telecommuting and online education.

Sung Yoon-mo, Minister of Trade, Industry and Energy. / Photo by Moon Ho-nam munonam@

Trade Deficit for the First Time in 99 Months: "Temporary Phenomenon... Not a Recession-Type Deficit"

The trade deficit that appeared for the first time in 99 months since January 2012 is analyzed as a temporary phenomenon caused by the COVID-19 situation.

The Ministry of Trade, Industry and Energy said, "During the COVID-19 situation, our manufacturing industry is operating normally without shutdowns compared to major countries," and added, "A temporary trade deficit occurred because the rate of decrease in imports was lower than that of exports."

The ministry compared last month with January 2009, when the trade deficit occurred due to the global financial crisis. At that time, it was a recession-type deficit caused by increased energy imports due to high oil prices and a larger decrease in imports than exports. Last month, however, imports of intermediate and consumer goods contributing to domestic production decreased relatively less, indicating a favorable import structure.

In January 2009, imports of capital goods and intermediate goods decreased by 31.3% and 28.2%, respectively, which affected future production and investment, leading to 10 consecutive months of export sluggishness. In contrast, last month, capital goods imports increased by 1.3%, and intermediate goods imports decreased by only 13.9%.

Minister Sung Yun-mo of the Ministry of Trade, Industry and Energy said, "The trade deficit in April occurred because the decrease in exports was greater than the decrease in imports," and added, "It is by no means negative as it occurred in a situation where imports of capital goods and intermediate goods necessary for the normal operation of domestic manufacturing are continuing."

However, he said, "We are taking the recent export slump in Korea due to COVID-19 very seriously," and stated, "We will sufficiently and timely supply trade finance worth 36 trillion won to solve liquidity shortages of export companies."

He also mentioned, "To respond to strong movement and entry restrictions by each country, we will fully digitalize export marketing and expand video consultations and online exhibitions."

Minister Sung added, "The post-COVID-19 era is expected to be led by the untact industry, home economy, and K-quarantine industry," and said, "We will continue to foster new export growth engines such as 5G infrastructure, medical devices including diagnostic kits, processed foods, and sanitizers."

This content was produced with the assistance of AI translation services.