[Weekly Review] Exports Increased but 'Trade Deficit'... Full Impact of Ukraine Shock Begins

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Son Seonhee] Despite an increase in export value compared to the same period last year through the 10th of this month, the trade balance recorded a deficit. It is expected that if high oil prices persist due to the Russia-Ukraine conflict, it will have an adverse effect on the trade balance.

On the 11th, the Korea Customs Service announced that the export value from the 1st to the 10th of this month (provisional customs clearance basis) was $18.7 billion, a 14.9% increase compared to the same period last year. Although uncertainty in external conditions increased due to the Ukraine situation, the export improvement trend was not weakened.

However, during the same period, the trade balance recorded a deficit of $1.39 billion. Although the export value itself increased, imports were higher due to rising international energy prices. The trade balance had recorded deficits for two consecutive months in December last year and January this year, then posted a surplus last month. However, it has returned to a deficit within a month. Nonetheless, since last month also saw a deficit from the 1st to the 20th before successfully turning to a surplus at the end, and considering that export volumes typically increase at the end of the month, there is a possibility that the trade balance could achieve a surplus.

With oil and energy prices soaring sharply due to the Ukraine situation, it is expected that broad-based inflationary pressure will intensify starting this month. Not only crude oil and natural gas but also international grain prices are rising rapidly. The business community predicts that the consumer price inflation rate this month will reach the 4% range. A consumer price inflation rate in the 4% range has not appeared since December 2011 (4.2%). The March consumer price inflation rate is scheduled to be announced in early April.

While prices are rising like this, if Western countries continue sanctions against Russia due to the Ukraine situation and global trade volume contracts, the damage that the Korean economy must bear could be relatively greater. This is due to the export-dependent economic structure.

There are also expectations that the government’s economic growth target for this year (3.1%) will be revised downward again to the 2% range. Ultimately, there are concerns that 'stagflation,' where inflation rises amid an economic recession, will occur.

Jung Minhyun, a senior researcher at the Korea Institute for International Economic Policy (KIEP), said, "Energy supply from Russia has not decreased yet, so the energy supply shock has not materialized. If there is a supply shock beyond the rational expectations of economic agents and such a shock prolongs, stagflation could occur."

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