This Year's Trade Deficit Hits $7.85 Billion... Faster Than the Financial Crisis

Trade Deficit Exceeds $7.8 Billion from January to May... First Time in 25 Years Since the Foreign Exchange Crisis
Impact of Soaring Energy and Raw Material Prices... Faster Than the 2008 Financial Crisis
Combined Adversities Including Food Protectionism... Deficit Expected to Approach $16 Billion This Year

Production, Consumption, and Investment All Triple Decline
(Busan=Yonhap News) Reporter Son Hyung-joo = On the afternoon of the 31st of last month, the view of Busan Port Sinsundae Pier. In April, production, consumption, and investment recorded a 'triple decline' for the first time in 2 years and 2 months since the outbreak of the COVID-19 pandemic. Amid growing concerns over global inflation (rising prices), rising raw material costs and ongoing supply chain disruptions are further increasing worries about economic slowdown. 2022.5.31
handbrother@yna.co.kr
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[Asia Economy Sejong=Reporter Lee Jun-hyung] As energy and raw material prices soar, the trade deficit is also rapidly increasing. The accumulated trade deficit up to last month this year has exceeded 7.8 billion dollars. This is the largest trade deficit in 25 years since the 1997 foreign exchange crisis for the January-May period. With major countries adopting a ‘food protectionism’ stance and grain prices rising, it is analyzed that the annual trade deficit this year will reach around 16 billion dollars.

According to the Ministry of Trade, Industry and Energy on the 2nd, the trade balance recorded a deficit of 1.71 billion dollars last month. Exports increased by 21.3% from a year earlier to 61.52 billion dollars, while imports rose by 32% to 63.22 billion dollars. As a result, the trade balance continued a deficit for two consecutive months following April (-2.51 billion dollars). Previously, the trade balance turned to a surplus in February this year but returned to a deficit in April.

The cumulative trade deficit this year was tallied at 7.85 billion dollars. It is the first time in 25 years that the trade deficit for January-May has soared to this scale since the 9.26 billion dollar deficit recorded during the 1997 foreign exchange crisis. Compared to the global economic crisis in 2008 (6.34 billion dollars), it is 1.51 billion dollars higher. At this pace, the trade deficit could exceed 10 billion dollars within one to two months.

The biggest cause of the trade deficit lies in energy and raw material prices. Due to geopolitical conflicts such as the Ukraine crisis, energy and raw material prices have been soaring, and import amounts have consistently exceeded 60 billion dollars. Imports first surpassed 60 billion dollars in December last year (61.16 billion dollars) and have recorded over 60 billion dollars every month except February this year. Last month, energy imports surged 84.4% year-on-year to 14.75 billion dollars.

The problem is that the trade deficit is likely to prolong. China’s large-scale lockdown measures, which negatively affect exports, are continuing for a long time, and with the spread of food protectionism, international grain prices are also continuing their sharp rise. In fact, last month, agricultural product imports reached 2.42 billion dollars, marking three consecutive months above 2 billion dollars since March.

There is also speculation that this year’s trade deficit could reach the largest scale since 2008. The Korea Institute for Industrial Economics and Trade (KIET) recently forecasted that this year’s trade deficit will reach 15.8 billion dollars. Korea’s last annual trade deficit in the 2000s was in 2008 (13.3 billion dollars). Professor Jeong In-gyo of Inha University’s Department of International Trade said, “Considering the overall domestic and international conditions such as high oil prices, it is difficult to be optimistic about improving the trade balance in the second half of this year,” adding, “A trade deficit on the scale of 10 billion dollars is inevitable.”

The government also shares concerns about the impact on exports, the ‘growth engine’ of the Korean economy. Minister of Trade, Industry and Energy Lee Chang-yang stated, “Concerns about the prolonged trade deficit are growing as high levels of energy and raw material prices continue,” and added, “The domestic and international economic conditions such as global low growth, inflation, and supply chain instability present a severe situation for our economy, which has achieved growth centered on exports.”

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