Industrial Research Institute "This Year's Export Growth Rate Revised Up from 11.2% to 19.1%... Continued Strength in Cars and Semiconductors"

Economic and Industrial Outlook for the Second Half of 2021

Export Unit Price Increase Leads to Higher-than-Expected Export Growth Rate in the First Half of the Year
However, Variables Include Macroeconomic Policy Changes Due to COVID-19 Resurgence and Inflation Concerns

2021 South Korean Economic Growth Rate Revised from 3.2% to 4.0%

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[Sejong=Asia Economy Reporter Joo Sang-don] The Korea Institute for Industrial Economics & Trade (KIET) has revised upward its export growth rate forecast for this year to 19.1%. Due to the base effect from last year's COVID-19 spread, increased consumption from global economic recovery, and improved manufacturing conditions, exports of major items have already increased by double digits in the first half of this year. In the second half, export growth is expected to accelerate, centered on regions showing economic recovery such as the United States and China, with increased demand from improved consumer sentiment and rising export unit prices caused by semiconductor supply shortages and oil price increases, leading to a steeper export growth than initially projected.

On the 28th, KIET announced through its '2021 Second Half Economic and Industrial Outlook' that export value this year is expected to reach $610.5 billion, a 19.1% increase compared to the same period last year.

Hong Seong-wook, a research fellow at KIET, said, "Exports in 2021 are expected to grow by 19.1% annually due to the easing of COVID-19 impacts from vaccine distribution in major countries, increased consumption from global economic recovery, and improved manufacturing conditions." He added, "By industry, export growth will be maintained through increases in eco-friendly vehicles and semiconductor IT products, increased ship deliveries, rising petroleum product prices due to oil price recovery, and growth in bio-health related exports."

KIET had previously forecasted an 11.2% increase in exports at the end of last year. Regarding the upward revision, Hong explained, "The global economic recovery, especially centered on the United States, was steeper than expected," and "With oil prices rising significantly, export unit prices and export values increased, leading to an upward revision of the export outlook." In fact, exports from January to May this year increased by 23.4% compared to the same period last year. KIET had forecasted a 12.6% increase in exports for the first half of this year at the end of last year, but this forecast was sharply revised upward to 25.9%.

However, he predicted, "Uncertainties such as the base effect from the export recovery at the end of 2020, COVID-19 resurgence in Europe and emerging countries, macroeconomic policy changes due to inflation concerns, and geopolitical conflicts will limit the extent of export growth."

Exports of 13 major key items including automobiles, shipbuilding, steel, semiconductors, and displays are expected to increase by 16.7% in the second half of this year. Cho Yong-won, a research fellow at KIET, said, "With expectations of economic recovery due to vaccine spread and continued rise in export unit prices, the export value and the manufacturing share of total domestic exports will exceed pre-pandemic levels." He added, "Exports of the 13 major items are projected at $474.9 billion, exceeding the $426.4 billion recorded in 2019."

Specifically, automobile exports are expected to increase by 12.3% due to the expansion of high-priced vehicles such as electric and luxury cars and increased demand for parts. Shipbuilding is forecasted to grow by 17.2% due to deliveries of high-priced offshore plants. General machinery is expected to increase by 10.6% due to rising demand for domestically produced products mainly from the United States and China. Other expected growth rates include steel at 22%, refining at 47%, petrochemicals at 45.8%, bio-health at 16.8%, and semiconductors at 10.7%.

KIET expects import growth to be even steeper. While the import growth rate was forecasted at 9.6% at the end of last year, it is now expected to increase by 21.0%. Hong said, "Due to rising international oil prices and base effects, a relatively rapid increase is expected, with import unit prices rising. Domestic economic recovery and base effects will also lead to a significant increase." He added, "In 2021, imports are expected to grow faster than exports, resulting in a slight decrease in the trade surplus to $44.6 billion compared to the previous year."

Oil prices are expected to be around $64 per barrel, and the won-dollar exchange rate around 1,114 won. Despite a reduction in crude oil supply cuts, international oil prices are expected to rise due to a sharp increase in crude oil demand from global economic recovery. Additionally, a gradual rise in U.S. interest rates and expanded vaccine distribution in major countries are leading to a weaker dollar, while domestic export growth and domestic vaccine distribution plans are factors strengthening the Korean won.

KIET forecasts that the South Korean economy will achieve a 4.0% growth rate this year, an upward revision of 0.8 percentage points from the 3.2% forecast at the end of last year. Hong said, "In 2021, although ongoing COVID-19 uncertainties limit consumption recovery, rapid recovery in exports and investment due to improved external conditions and the base effect from the 2020 economic contraction are expected to result in 4.0% growth." He added, "The biggest variables this year remain the speed of vaccine distribution and the continuation of COVID-19 spread. Domestically, the pace of private consumption recovery, stabilization of the employment market, and improvement in income conditions will also act as additional variables."

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