[Weekly Review] April Exports Increase at Largest Rate in 10 Years... Q1 GDP Up 1.6%, Surpassing Pre-Corona Levels

(Photo) [Image source=Yonhap News]

[Sejong=Asia Economy Reporter Joo Sang-don] April exports increased at the largest rate in 10 years. South Korea's GDP grew by 1.6% in the first quarter of this year, recovering to pre-COVID-19 levels. The Asian Development Bank (ADB) forecasted South Korea's economic growth rate at 3.5% for this year, revising it upward by 0.2 percentage points from the end of last year. Consumer sentiment improved for the fourth consecutive month, and the business sentiment perceived by companies reached the highest level in about 10 years.

◆April exports reached $51.19 billion... highest ever= April exports increased at the largest rate in 10 years, reaching $51.19 billion, the highest ever for April. The cumulative export amount from January to April this year also set a new record.

According to the Ministry of Trade, Industry and Energy on the 1st, April exports amounted to $51.19 billion, up 41.1% compared to the same period last year. The export growth trend that began in November last year (3.9%) continued for six consecutive months. This is the first time in 3 years and 1 month that exports have increased for six consecutive months. The growth rate of April exports is the highest since January 2011.

The cumulative export amount from January to April this year ($197.7 billion) also set a new record. The previous record was $194.9 billion in 2018. April had two more working days than the previous year. Accordingly, the average daily export increased by 29.4% compared to the same period last year, reaching $2.13 billion.

All 15 major export items showed an increasing trend. In particular, 13 items including semiconductors and automobiles recorded double-digit growth rates. Semiconductors increased by 20.3%, marking 10 consecutive months of growth. The export amount ranked second highest for April at $9.34 billion. Automobiles recorded double-digit growth for four consecutive months (73.4%), surpassing $4 billion for two consecutive months for the first time in six years. Petrochemicals achieved the second highest export amount ever for March at $4.66 billion, following $4.75 billion in March this year. Petroleum products recorded $2.88 billion, increasing for two consecutive months for the first time in 2 years and 4 months, reaching the highest level in 1 year and 3 months. Biohealth and secondary batteries also increased for 20 and 8 consecutive months respectively, both setting the highest export amounts ever for April.

◆Q1 GDP growth rate 1.6%... surpassed pre-COVID levels= South Korea's economy grew by 1.6% in the first quarter of this year, recovering to pre-COVID-19 levels. This marks three consecutive quarters of growth above 1%, significantly exceeding initial expectations.

According to the Bank of Korea's preliminary report on 'Q1 2021 Real GDP' released on the 27th of last month, real GDP from January to March this year was 470.8467 trillion won, up 1.6% from the previous quarter. Real GDP had contracted due to COVID-19, with -1.3% in Q1 and -3.2% in Q2 last year. However, it turned positive with 2.1% growth in Q3 and continued growth for three consecutive quarters. Previously, the Bank of Korea analyzed that if the GDP growth rate in Q1 this year exceeds 1.3% quarter-on-quarter, GDP could recover to the level of Q4 2019.

GDP growth was driven by both exports and domestic demand. As advanced countries like the U.S. accelerated vaccination, the global economy revived, leading to rapid export growth, and the previously sluggish private consumption also showed a notable recovery. Private consumption increased by 1.1% quarter-on-quarter, driven by durable goods such as passenger cars and home appliances, as well as non-durable goods like food and beverages. Government consumption also increased by 1.7% as budget execution accelerated.

◆ADB raises South Korea's growth forecast from 3.3% to 3.5%, projects 3.1% for next year= The Asian Development Bank (ADB) revised South Korea's economic growth forecast for this year upward by 0.2 percentage points to 3.5% compared to the end of last year.

On the morning of the 28th of last month, ADB released the '2021 Asian Development Outlook (ADO)', forecasting South Korea's GDP growth rate to be -1.0% last year, 3.5% this year, and 3.1% next year. The growth forecast for this year was raised by 0.2 percentage points from the December 2020 forecast of 3.3%.

Regarding the background of South Korea's economic growth recovery, ADB stated, "It is due to expansionary fiscal and monetary policies, increased exports driven by demand for semiconductors and IT products, consumption stimulation through automobile tax cuts, and the Korean New Deal initiative."

On the same day, ADB projected that the economic growth rate of 46 developing countries in Asia will rise sharply from -0.2% last year to 7.3% this year, and reach 5.3% next year. The regional growth rate was revised upward by 0.5 percentage points from the previous forecast of 6.8%. Central Asian countries, which recorded -1.9% growth last year, are expected to grow 3.4% this year and 4.0% next year. Southeast Asian countries, which experienced a sharp decline of -4.0% this year, are expected to rebound with 4.4% growth this year and 5.1% next year.

◆Vaccine + pent-up consumption effect... consumer sentiment above 100 for two months= With the start of vaccinations and people tired of social distancing increasing face-to-face consumption, consumer sentiment has improved for four consecutive months.

According to the Bank of Korea's 'April 2021 Consumer Survey' released on the 28th of last month, the Consumer Confidence Index (CCSI) was 102.2, exceeding 100 for two consecutive months.

CCSI is calculated using six of the 15 indices that make up the Consumer Survey Index (CSI): current living conditions, living conditions outlook, household income outlook, consumption expenditure outlook, current business conditions, and future business conditions. The long-term average from 2003 to 2020 is set at 100; values above 100 indicate relatively optimistic consumer sentiment, while values below 100 indicate pessimism. The fact that consumer sentiment remained optimistic for two consecutive months means that five out of the six CSI components continued to rise.

Among indices not included in CCSI, the Housing Price Outlook CSI (122) declined for the fourth consecutive month, dropping 2 points compared to last month. The Bank of Korea explained that this was likely influenced by the government's announcement in February of plans to expand housing supply in metropolitan areas, new public land development plans, and the selection of pilot project sites announced last month.

◆Business sentiment highest in 10 years... manufacturing large corporations and exporters optimistic= Business sentiment perceived by companies rose to the highest level in about 10 years. Most sectors' Business Survey Index (BSI) increased, with manufacturing large corporations and exporters' BSI exceeding 100. A BSI above 100 means more companies view the current business situation positively than negatively.

According to the Bank of Korea's 'April 2021 Business Survey Index (BSI) and Economic Sentiment Index (ESI)' released on the 29th of last month, the overall industry BSI this month was 88, up 5 points from the previous month, marking the highest level since June 2011 (88). This is the highest in 9 years and 10 months.

The manufacturing BSI also jumped 7 points to 96, the highest since May 2011 (96), and the non-manufacturing BSI rose 5 points to 82, the highest since May 2018 (84).

Among manufacturing, large corporations (107) and exporters (109) all exceeded 100. BSI is a statistic that surveys entrepreneurs' judgments and outlooks on the current business situation. It ranges from 0 to 200; a value above 100 indicates that more companies responded positively than negatively.

◆Expansion of DSR personal loan regulations... full implementation in July 2023= The government plans to reduce the household debt growth rate to the pre-COVID-19 level of around 4% next year. To achieve this, the Debt Service Ratio (DSR) will be applied gradually at the borrower level and fully implemented from July 2023. However, for young people, a 40-year ultra-long-term mortgage will be introduced to reduce the burden of principal and interest repayments.

The household debt growth rate steadily declined from 11.6% in 2016 to 4.1% in 2019 but rose again to 7.9% last year. This was due to overlapping demand for real estate loans and 'debt investment.' Especially, self-employed people who faced crisis last year borrowed 118.6 trillion won from banks alone, doubling compared to the previous year. The government plans to reduce the household debt growth rate to 5-6% this year and to around 4% next year.

The government's decision to gradually expand DSR regulations aims to curb the total loan volume increase. DSR is an indicator that calculates the borrower's repayment burden on all loans. Currently, it is regulated by banks, and an average DSR of 40% is maintained. There are cases where borrowers take loans exceeding 40%, which the government aims to prevent.

◆Coupang is a large corporation without a controlling shareholder... Hyundai Motor's controlling shareholder is Chung Eui-sun= Coupang has entered the large business group list with assets exceeding 5 trillion won, but the controlling shareholder was designated as the corporation instead of Chairman Kim Beom-seok. Third-generation business leaders such as Hyundai Motor Chairman Chung Eui-sun and Hyosung Chairman Cho Hyun-joon were recognized by the government as controlling shareholders of their respective business groups.

On the 29th of last month, the Fair Trade Commission announced that 71 business groups with total assets exceeding 5 trillion won as of May 2021 will be designated as publicly disclosed business groups, and among them, 40 groups with total assets exceeding 10 trillion won will be designated as mutually restricted business groups.

Newly designated publicly disclosed business groups include Coupang, Korea Aerospace Industries, Hyundai Marine & Fire Insurance, Joongang, Banpo Holdings, Daebang Construction, MDM, and IS Holdings, while KG was excluded.

Companies belonging to publicly disclosed business groups are subject to disclosure and reporting obligations under the Fair Trade Act and are regulated against unfair profit appropriation by controlling shareholders and their families. Companies belonging to mutually restricted business groups are additionally subject to restrictions on mutual shareholding, debt guarantees, and voting rights in financial and insurance companies. Newly designated mutually restricted business groups include Celltrion, Naver, Nexon, Netmarble, Hoban Construction, SM, and DB, while Daewoo Construction was excluded.

The Fair Trade Commission changed the controlling shareholders (same person) of Hyundai Motor and Hyosung. For Hyundai Motor, Honorary Chairman Chung Mong-koo delegated all voting rights on Hyundai Motor and Hyundai Mobis shares to Chairman Chung Eui-sun, considering executive changes and large-scale investments after Chairman Chung Eui-sun's inauguration. For Hyosung, Chairman Cho Hyun-joon, as the largest shareholder of the holding company, received comprehensive delegation of voting rights on Hyosung shares held by Honorary Chairman Cho Seok-rae, considering major management changes after Chairman Cho's inauguration.

In Coupang's case, assets rapidly grew from 3.1 trillion won to 5.8 trillion won, leading to its designation as a publicly disclosed business group. The controlling shareholder was designated as the corporation. Although Chairman Kim Beom-seok effectively controls domestic Coupang affiliates through the U.S. Coupang corporation, the Fair Trade Commission considered that Kim is a U.S. national. The Fair Trade Commission has designated corporations as controlling shareholders for foreign companies so far. Vice Chairman Kim Jae-shin explained, "We comprehensively considered past cases, current system shortcomings, and the scope of affiliates."

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