[Shaking Export Korea] As Energy Prices Soar... South Korea's Growth Engine Also 'Wobbles'

Energy Imports in July Reach $18.5 Billion, Up 90.5% YoY
Trade Deficit for 4 Consecutive Months...First Time in 14 Years Since 2008 Financial Crisis
Low Chances of Improvement in Second Half...Trade Balance Next Year Also Unlikely to Improve
Industry Minister: "Taking Situation Seriously...Export Measures to Be Announced This Month"

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Lee Jun-hyung] As energy prices continue their soaring run, warning lights have turned on for South Korea's economic "growth engine," trade. The trade balance has recorded a deficit for four consecutive months for the first time in 14 years since 2008, due to a sharp increase in energy import costs this year. The high exchange rate situation, with the won-dollar rate recently fluctuating above 1,300 won, is also evaluated to be fueling the trade deficit. With the Ukraine crisis entering a prolonged phase, external conditions in the second half of this year are expected to remain challenging.

According to the Ministry of Trade, Industry and Energy on the 1st, last month's energy import value was $18.5 billion, a 90.5% increase compared to the same period last year ($9.71 billion). The significant rise in energy import costs over the past year is due to the sharp surge in international energy prices triggered by the Ukraine crisis. In fact, prices of the three major energy sources?crude oil (41.4%), gas (113.9%), and coal (173.5%)?continued their steep upward trend last month.

Accordingly, monthly import values have exceeded $60 billion for five consecutive months. Previously, import values surpassed $60 billion for the first time in December last year ($61.16 billion) but decreased to $53.11 billion in February. However, as international energy prices soared following the Ukraine crisis, March recorded $63.59 billion, surpassing $60 billion again, and last month rose further to $65.37 billion.

Cumulative Trade Deficit Surpasses $15 Billion... High Exchange Rate Also a 'Negative Factor'

This explains why the trade balance has continued its 'deficit streak' for four consecutive months. The trade balance turned to a deficit in April this year and recorded a $4.67 billion deficit last month. South Korea experiencing a trade deficit for four consecutive months is the first time in 14 years since the global financial crisis in 2008. The cumulative trade deficit this year has already exceeded $15 billion, indicating the seriousness of the recent trade deficit situation.

Countries with high energy import dependence such as Japan and Germany are facing similar situations. Japan recorded its largest-ever trade deficit of 7.9 trillion yen (approximately 77.52 trillion won) in the first half of this year alone. Germany's trade balance recorded a deficit in May for the first time in 31 years since 1991. A Ministry of Trade official explained, "The increase in imports centered on energy sources has outpaced export growth rates, causing trade deficits," adding, "Major countries are also experiencing worsening trade balances due to a sharp rise in energy imports."

The high exchange rate is also acting as a negative factor for the trade balance. The won-dollar exchange rate has recently hovered above 1,300 won, the highest level since 2008. Typically, a weak won is a positive factor that improves the profitability of domestic export companies, but the situation has changed due to the sharp rise in import costs of raw materials such as energy. The higher the won-dollar exchange rate, the more won must be spent on imports.

Minister Lee Chang-yang reporting on work
(Seoul=Yonhap News) Reporter Lee Jung-hoon = Minister Lee Chang-yang of the Ministry of Trade, Industry and Energy is reporting on work at the plenary meeting of the Industry, Trade, Small and Medium Venture Business Committee held at the National Assembly on the morning of the 29th of last month. 2022.7.29 [Photo by the National Assembly Press Photographers Group]
uwg806@yna.co.kr
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Government Also Concerned About Prolonged Trade Deficit: "Will Announce Export Measures"

The problem is that there is little room for improvement in the trade balance in the second half of this year. The Ukraine crisis, a major cause of the surge in energy prices, is prolonging, and there is no sign of exchange rate stabilization. Professor Jeong In-kyo of Inha University's Department of International Trade said, "We should consider that there are no conditions to resolve the trade deficit in the second half of the year," adding, "Under the current circumstances, it is difficult to be optimistic about next year's trade balance as well."

The government is also concerned about the prolonged trade deficit. Minister of Trade, Industry and Energy Lee Chang-yang said, "The combination of high energy prices and summer energy demand has caused a trade deficit for four consecutive months," adding, "Due to the global economic slowdown including China, the export growth rate has remained in single digits since June, raising concerns about the slowdown in export growth and the expansion of the trade deficit."

The government plans to announce support measures within this month to enhance export competitiveness. Minister Lee said, "The government is taking the current situation seriously, and related ministries are making every effort to maintain export competitiveness," adding, "We plan to announce a comprehensive export strategy within this month that includes regulatory improvements restricting domestic export companies' activities, solutions to on-site difficulties, and specialized support for major industries."

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