Export 'Spring Breeze' but Consumption and Employment Lukewarm... 'K-Polarization' (Comprehensive)

March exports surpass $50 billion for the first time this year... 5 consecutive months of growth
Perceived economy remains stagnant... Consumer and employment-related indices decline

[Asia Economy reporters Eunbyeol Kim, Sangdon Joo in Sejong, and Sunhee Son] In March, export value surpassed $50 billion for the first time this year, increasing by more than 16% compared to the same period last year. The export growth trend, which began in November last year centered on sectors such as semiconductors, automobiles, and biohealth, continued for five consecutive months, setting a record high for the same month. While exports have essentially recovered to pre-COVID-19 levels, domestic demand indicators such as consumption and employment have yet to escape the COVID-19 crisis, raising concerns about a so-called ‘K-shaped economic recovery’ becoming a reality.

◆ Monthly exports surpass $50 billion = According to the Ministry of Trade, Industry and Energy on the 1st, last month’s export value reached $53.83 billion, up 16.6% from the same period last year. The export growth rate marked the highest level in 2 years and 5 months since October 2018.

Major export items continued their strong performance. Among the 15 key items, 14 increased except for displays (-1.1%), marking the first time in 9 years and 1 month. In particular, semiconductor exports rose 8.6% year-on-year to $9.51 billion, driving the overall export growth.

Based on this, major domestic and international institutions are collectively revising South Korea’s economic growth rate upward to the 3% range this year. The International Monetary Fund (IMF) recently projected Korea’s growth rate at 3.6%, up 0.5 percentage points from the previous forecast, followed by the National Assembly Budget Office forecasting 3.1% growth this year. This is an increase of 0.8 percentage points from the September last year forecast of 2.3%. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki said on the day, "Thanks to global vaccine distribution, global expansion trends, and manufacturing sector vitality, the global economic upturn this year is expected to be steeper than anticipated."

However, the real economic sentiment remains at a low level. Self-employed individuals, who suffered significant sales losses due to COVID-19, are still experiencing slow recovery, and consumption is showing signs of further contraction. According to the industrial activity trend for February released by Statistics Korea the day before, the retail sales index actually fell by 0.8% compared to the previous month.

In particular, the gap between rapidly recovering economic indicators such as Gross Domestic Product (GDP) and exports and the real economy is due to sluggish employment recovery. The employment creation effect of the manufacturing and export sectors, which account for a significant portion of the Korean economy, is not large. According to the input-output table published by the Bank of Korea last year, the employment inducement coefficient for manufacturing is less than one-third of that for the service industry in terms of the number of direct and indirect jobs generated by producing 1 billion KRW worth of output. The employment inducement coefficient for other service industries is 24.9 persons, and for restaurant and accommodation services, it is 19.7 persons, whereas for the computer, electronic, and optical equipment industry, a key export sector, it is about 3.5 persons. Industries such as primary metal products (4.4 persons) and chemical products (5.4 persons) also have significantly lower employment creation effects. This explains why employment recovery remains sluggish even as corporate performance recovers due to rapid increases in semiconductor and automobile exports. Additionally, the daily new COVID-19 cases maintaining at around 400 to 500 are cited as obstacles to a full-scale consumption recovery.

◆ The real economy shock should not be overlooked = Economic experts agree that while the recovery in exports and growth rates is encouraging, the government must not overlook the real economy shock hidden behind the indicators. Professor Donghyun Ahn of Seoul National University’s Department of Economics said, "Large corporations in the semiconductor and platform industries have grown beyond pre-COVID-19 levels, but except for some large company employees, recovery remains slow, so people cannot relate to the improved economic indicators." He explained, "Asset polarization has been severe in Korea, and recently, income polarization has progressed as performance bonuses are given only in some industries, widening the gap with real economic sentiment." Professor Ahn added, "Although the government talks about polarization, there are few indicators that can be confirmed by Statistics Korea or the Bank of Korea."

Professor Taeyoon Sung of Yonsei University’s Department of Economics said, "Because Korea’s export ratio is so large, economic indicators like GDP do not clearly reflect the shock to face-to-face consumption," and evaluated, "It is not surprising that exports or production increase depending on the global economy."

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