Hyundai Research Institute: "This Year Will Escape Recession-Type Trade Surplus... Exchange Rate Risk Remains"

[Asia Economy Reporter Dongwoo Lee] There is a forecast that South Korea will be able to escape the 'recession-type trade balance' this year. However, it is expected that the won-dollar exchange rate will continue to decline, which may worsen the profitability of domestic export companies.

Hyundai Research Institute stated this in its report titled 'Key Issues of Domestic Exports in 2021,' published on the 24th.

According to the report, recent developments such as the conclusion of the Regional Comprehensive Economic Partnership (RCEP), a mega free trade agreement (FTA) involving 15 countries including South Korea, the easing of US-China trade disputes following the inauguration of the Biden administration, and the possibility of rejoining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) have raised expectations for a relaxation of global protectionist trends.

Accordingly, it is expected that South Korea can escape the recession-type trade surplus this year. From 2019 to 2020, South Korea recorded a trade surplus despite decreases in both exports and imports.

This year, global economic improvement and the activation of the non-face-to-face economy are expected to increase worldwide import demand for major domestic export items. In addition, due to large-scale liquidity expansion policies in various countries and rising prices of oil and raw materials, export prices are expected to rise, further expanding the trade surplus.

With the expectation of continued large-scale liquidity supply in the United States and the resulting dollar weakness, the won-dollar exchange rate is expected to decline (appreciation of the won), which may worsen the profitability of domestic export companies.

The report also stated that the strengthening of major countries' eco-friendly policies is expected to be reflected in the trade environment, acting as both opportunities and burdens for domestic export companies.

The institute said, "Representative eco-friendly industrial sectors such as domestic electric and hydrogen vehicles, which have been maintaining growth recently, are expected to benefit from the strengthening of global eco-friendly policies as an opportunity to expand exports," adding, "On the other hand, traditional heavy industries such as steel and petrochemicals, which have relatively high carbon emissions compared to other industries, face concerns over weakened export competitiveness."

Furthermore, due to changes in global demand following the COVID-19 pandemic, it is likely that domestic exports will continue to be differentiated by industry and export destination countries.

Hyundai Research Institute emphasized, "It is necessary to strengthen monitoring of the possibility of global economic recession and deterioration of export market conditions and to prepare active countermeasures," and added, "We must actively respond to changing global trade trends such as the resurgence of multilateral trade agreements and the reorganization of global value chains."

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