BOK: "US-China Trade Conflict Negatively Impacts South Korea Exports"

Bank of Korea 'June 2020 Monetary and Credit Policy Report'

[Asia Economy Reporter Kim Eunbyeol] The Bank of Korea has stated that amid the impact of the novel coronavirus disease (COVID-19) on South Korea’s exports, the reemergence of the US-China trade conflict requires careful attention. Since the end of April, major countries have resumed economic activities, and global demand is expected to improve in the second half of the year; however, the US-China trade conflict could become a variable.

According to the "June 2020 Monetary and Credit Policy Report" released by the Bank of Korea on the 11th, the Bank said, "Considering the strong performance in the first quarter and additional demand for semiconductors, our exports are expected to show a relatively favorable trend compared to global merchandise trade," but added, "If the Chinese economy, which is showing a relatively favorable improvement trend compared to major countries, suffers damage again due to the US-China trade conflict, South Korea’s exports to China could be significantly affected."

If the US-China trade conflict intensifies again, it could increase global economic uncertainty and shrink global investment, which has a large import-inducing effect. The report also stated, "Regulations by the United States on Chinese companies and the acceleration of global companies’ de-China-ization could negatively impact our exports, which are highly dependent on China."

The Bank of Korea also pointed out how long low oil prices persist as a variable affecting exports. It said, "If low international oil prices continue, it will lead to economic downturns in oil-producing countries such as the Middle East and Russia, which will act as a factor reducing exports of automobiles, machinery, and other products that have a relatively high export share to these countries." It added, "A decrease in shipbuilding and overseas construction orders and a decline in pipeline demand are also expected to negatively affect exports of ships, machinery, and steel."

In fact, exports to the Middle East and the Commonwealth of Independent States (CIS) countries increased in the first quarter, but sharply declined from April when international oil prices fell significantly, and the decline in exports to Latin America also expanded considerably.

The report also forecasted that consumer price inflation would remain low for the time being due to the impact of COVID-19. The Bank of Korea stated, "After the spread of COVID-19, consumer prices have slowed significantly due to the sharp drop in international oil prices, economic slowdown, and expansion of free education," adding, "In major advanced countries, although there are sectoral differences depending on the intensity of lockdown measures, inflation rates generally fell sharply."

After the spread of COVID-19, consumer price inflation slowed rapidly in most countries. In particular, the sharp drop in international oil prices and the resulting decline in energy prices contributed most significantly to the slowdown in inflation. However, short-term inflation trends varied somewhat depending on the extent of COVID-19 spread, lockdown measures, and government policies. In South Korea’s case, since there was no full lockdown, the rise in prices of daily necessities was minimal. A Bank of Korea official noted, "Government policies such as the expansion of free high school education and reduction of individual consumption tax acted as additional downward factors on prices."

He added, "Looking at future inflation trends, consumer price inflation is expected to remain low for the time being as these factors continue to exert influence," and "Next year, as the impact of falling international oil prices disappears, inflation is expected to gradually rise due to economic improvement and the reduction of welfare policy effects."

The Bank of Korea cited surveys of domestic experts and the general public, stating, "Short-term expected inflation (over the next year) has declined reflecting recent price trends, while long-term expected inflation (five years ahead) generally remains at pre-COVID-19 levels."

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