"South Korea's Exports Likely to Slow Down Somewhat in the Second Half... COVID-19 Risks Remain"

[Asia Economy Reporter Jeong Hyunjin] Leading export companies in South Korea forecast that the growth rate of Korean exports in the second half of this year will somewhat slow down compared to the first half. Companies cited the ongoing COVID-19 pandemic and fluctuations in raw material prices as major export risks for the second half.

The Korea Economic Research Institute under the Federation of Korean Industries commissioned market research firm Mono Research to conduct the "2021 Second Half Export Outlook Survey" targeting 150 companies from the top 1,000 companies by sales in 12 major export industries from last month 3rd to 24th. The survey results projected that exports in the second half of this year will increase by 2.3% compared to the same period last year. The Korea Economic Research Institute cited Korea Customs Service data showing that the export growth rate in the first half of this year was 22.5%.

Data provided by Korea Economic Research Institute

Among the responding companies, 55.2% expected exports in the second half of this year to decrease compared to the same period last year. By industry, 70% of electrical and electronics companies anticipated a decline, showing the most negative outlook, followed by automobile and automobile parts at 63.0%, biohealth at 59.5%, and petrochemicals and petroleum products at 52.4%, all expecting export decreases in the second half. Conversely, industries such as steel, general machinery, and shipbuilding had more companies forecasting export increases than decreases.

The Korea Economic Research Institute expressed concern, stating, "Although more companies expect export decreases than increases in the second half, the overall export growth indicates that some industries and companies will drive the overall export growth trend," adding, "A K-shaped polarization phenomenon may appear in exports, where performance diverges by industry and company."

Companies expecting exports to decline compared to the same period last year cited the following reasons: ▲contraction of global trade due to the ongoing COVID-19 pandemic (44.4%), ▲deterioration of the economic situation in export destination countries (16.2%), and ▲weakened price competitiveness due to the strong Korean won (7.4%). On the other hand, companies expecting export growth mentioned ▲trade activation due to COVID-19 easing and global economic rebound (51.3%), ▲improvement in the economic situation of export destination countries (19.8%), and ▲strengthened price competitiveness due to a weaker Korean won (9.6%).

Regarding export profitability, which refers to the profit level earned through exports, 53.3% of respondents expected it to be similar to the second half of last year. Companies expecting export profitability to improve accounted for 28.7%, while 18.0% anticipated deterioration.

The appropriate KRW-USD exchange rate for South Korean companies to secure export profitability in the second half of this year was on average 1,122 won, and the breakeven KRW-USD exchange rate was on average 1,116 won. If the exchange rate remains at the average levels seen in January (1,097 won) and February (1,112 won) during the second half, it is analyzed that the exchange rate would fall below the breakeven rate, potentially causing losses for companies.

Data provided by Korea Economic Research Institute

Companies identified the following risk factors for the export environment in the second half of this year: ▲ongoing COVID-19 pandemic (42.9%), ▲fluctuations in raw material prices (23.3%), ▲increased volatility in the KRW-USD exchange rate (10.3%), ▲diplomatic issues such as Korea-Japan relations and US-China trade disputes (8.9%), and ▲expansion of protectionism (7.5%).

To strengthen the export competitiveness of domestic companies, the most common response at 31.8% was to "make all-out efforts to respond to COVID-19, including securing vaccines." This was followed by the need for government policies such as ▲expansion of financial and tax support (18.5%), ▲improvement of unreasonable corporate regulations (18.3%), ▲resolution of diplomatic issues such as Korea-Japan relations and US-China trade disputes (14.4%), and ▲support for discovering emerging markets and diversifying export destinations (11.2%).

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