[Shaking Export Korea] Growing 'Fear of R'... Bleak Outlook Beyond the Second Half

US Recession, China’s Growth Slowdown
Export-Dependent Korean Economy Faces Crisis
Exports Expected to Grow 0.6% in Early Next Year
Global Economic Deterioration May Lower Outlook
Overseas Conditions Unlikely to Recover Quickly

A container ship from Japan docked at Yangshan Port container terminal in Shanghai on April 27 [Image source=Yonhap News]

As concerns over economic slowdown in major countries such as the United States and China grow, there are forecasts that South Korea's export performance will further deteriorate in the second half of the year and beyond. In particular, in the first half of next year, when the ripple effects of global inflation and interest rate hikes in major countries are expected to fully materialize, South Korea's export growth rate is anticipated to remain in the 0% range. Analysts point out that amid the shadow of a complex crisis engulfing South Korea, even exports, which have served as an economic pillar, are rapidly losing momentum.

According to the Bank of Korea and the government on the 1st, as global economic growth weakens due to high inflation, interest rate hikes, and the Ukraine crisis, uncertainty in the South Korean economy, which is highly dependent on exports, is also increasing. In its revised economic outlook last May, the Bank of Korea predicted that South Korea's exports would increase by 5.8% year-on-year in the first half and 1.1% in the second half, resulting in an annual growth of 3.3%. Although this is 0.1 percentage points lower than the forecast made in February, recent domestic and international economic conditions have been worse than expected, making even this target difficult to achieve.

The biggest risk factor surrounding South Korea's exports is the possibility of economic slowdown in major trading partners such as the United States and China. The U.S. entered a 'technical recession' by experiencing negative growth in both the first and second quarters. Although Jerome Powell, Chair of the U.S. Federal Reserve (Fed), still denies a recession, the market has already accepted it as a fact, with the inversion of long- and short-term U.S. Treasury yields.

In particular, China, South Korea's largest export partner, saw its growth rate sharply decline to 0.4% in the second quarter. The Bank of Korea expects China's economy, which grew 8.1% last year, to remain in the mid-3% range this year. A 1 percentage point drop in China's growth rate would reduce South Korea's export growth rate by 0.34 percentage points.

Lee Chang-yong, Governor of the Bank of Korea, stated in a report to the National Assembly on the same day, "Especially in the case of exports, the growth rate is expected to weaken due to the slowdown in major trading partners such as China and the United States." Other emerging countries besides the U.S. and China are also experiencing accelerated economic slowdown due to rising prices and interest rate hikes, making it difficult to find alternative export destinations.

The Bank of Korea expects that if this trend continues, South Korea's export growth rate in the first half of next year will be limited to 0.6%. Considering that the effects of interest rate hikes are reflected in the economy with a time lag, the impact could be even greater in the second half of this year or the first half of next year. The market expects the Bank of Korea to further lower its export forecast in its revised economic outlook this month. If this happens, it will be difficult to achieve not only the Bank of Korea's economic growth forecast of 2.7% for this year but also the government's 2.5% target.

Professor Sung Tae-yoon of Yonsei University's Department of Economics said, "Despite the significant weakness of the Korean won, exports are not performing well, so the situation is quite difficult," adding, "It is unlikely that overseas conditions will recover in the short term, and with the issue of rising energy prices, the Bank of Korea is likely to revise its export forecast downward."

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