"Global Trade Slowdown Continues Through Next Year... Weakened Export Growth for Han"

A gas station in Seoul on the 19th. As oil prices continue to soar, the government is considering lowering the fuel tax cut to the legal maximum limit. The government is finalizing plans to reduce the fuel tax to the legal maximum of 37% and is expected to announce this as early as today through the 1st Emergency Economic Ministers' Meeting. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Seo So-jeong] Due to the rise in international raw material prices and China's continued zero-COVID policy, the slowdown in global trade is expected to continue until next year, gradually weakening South Korea's export growth, according to an analysis.

On the 19th, the Bank of Korea stated in its report "Recent Conditions and Evaluation of Global Trade" that "Since the beginning of this year, supply disruptions have intensified due to the Ukraine crisis and China's lockdown measures, leading to a slowdown in the growth of goods trade."

The report anticipated that the rise in international raw material prices caused by supply-demand imbalances during the pandemic recovery and the Ukraine crisis would negatively impact global trade through income and interest rate channels.

The increase in international raw material prices raises production costs for companies and reduces households' real purchasing power, negatively affecting economic growth and thereby shrinking trade volume. Additionally, the rise in raw material prices prompts major countries to raise benchmark interest rates to counter inflation, which dampens import demand in those countries and further negatively affects trade.

Empirical analysis showed that the rise in international raw material prices negatively affects global trade volume with a lag of about 2 to 5 quarters. According to impulse response analysis using a structural vector autoregression (VAR) model, a 10% increase in real international raw material prices led to a cumulative 0.58 percentage point decrease in global trade over the following five quarters. Applying this analysis, the rise in raw material prices since the Ukraine crisis is expected to reduce global trade volume by 0.51 percentage points over the next five quarters.

Furthermore, the possibility of further increases in international oil prices and the sustained high level of grain prices raise concerns that the decline in global trade volume may widen. International oil prices have continued to rise since mid-May, recently reaching the $120 range, and the futures price curve, which reflects market expectations for future oil prices, is also shifting upward.

In particular, China's trade volume has significantly decreased due to lockdown measures in major cities caused by the government's maintenance of the zero-COVID policy, negatively impacting global trade. Despite the Chinese government's active economic stimulus measures, it is expected to take considerable time for consumption to recover due to rising unemployment, resulting in a gradual recovery in imports.

The report explained, "Since March, lockdowns in major cities such as Shanghai have significantly slowed the growth rate of China's exports and imports," adding, "Due to the zero-COVID policy, China's trade growth rate decreased from 29.9% for the entire last year to 10.3% from January to May this year, which is a major factor worsening global goods trade."

However, it added that the easing of quarantine measures in major countries, which is gradually resolving supply disruptions and facilitating overseas travel, is a positive factor as it increases service trade.

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