[One Year of the Yoon Administration]⑭The Korean Economy Dragged Down by Export Slump

'Export sluggishness' is dragging down key economic indicators during the first year of the Yoon Suk-yeol administration. Exports have declined for seven consecutive months through April this year, and the trade deficit has persisted for 14 months, eroding South Korea's gross domestic product (GDP) growth rate. The International Monetary Fund (IMF) has already lowered South Korea's growth forecast four times since July last year (from 2.9% to 2.1%), projecting 1.5% economic growth this year. The Bank of Korea is also expected to slightly reduce its economic growth forecast from 1.6% in February this year. All of these are consequences of sluggish exports. In particular, the decline in semiconductor exports, South Korea's key export item, has led to weak manufacturing production and employment. Exports, once considered the driving force of the economy, have now become a drag on growth.

Exports Plunge 11.7% Over Last 7 Months; Trade Deficit Hits $43.7 Billion

According to the Ministry of Trade, Industry and Energy and the Korea Customs Service on the 4th, total exports during the first year of the Yoon Suk-yeol administration, from May last year to April this year, amounted to $653.5 billion, down $24.5 billion (-3.6%) from $678 billion in the previous year (May 2021 to April 2022).

The export decline is even more pronounced when looking at the recent seven-month period since the downturn began. Exports from October 2022 to April 2023 totaled $360.2 billion, a sharp drop of $47.8 billion (-11.7%) compared to $408 billion from October 2021 to April 2022. During this period, the trade deficit also widened significantly from $2.5 billion to $43.7 billion.

Kang In-soo, an economics professor at Sookmyung Women's University, said, "The sluggish exports are mainly due to the semiconductor market downturn, U.S.-China tensions, and changes in China's policies leading to a decrease in exports to China," adding, "As the trade deficit deepens, the contribution of net exports to growth has significantly diminished."

According to the Bank of Korea, the contribution of net exports (exports minus imports) to quarter-on-quarter growth has been negative for four consecutive quarters, starting from -1 percentage point in Q2 last year to -0.1 percentage point in Q1 this year.

The collapse in South Korea's exports is largely due to sharp declines in semiconductor and exports to China. Semiconductor exports have recorded negative growth for nine consecutive months since August last year (-7.8%). The sharp drop in export value is largely due to falling prices. The fixed contract price for DRAM, a transaction amount between companies, fell from an average of $3.41 from January to April last year to $1.45 in April this year, while NAND prices dropped from an average of $4.81 from January to May last year to $3.82 in April this year, a decline of 57.5% and 20.6%, respectively.

Kim Yang-pyung, a senior researcher at the Korea Institute for Industrial Economics and Trade, expressed concern, saying, "Due to weak semiconductor demand and inventory buildup, prices have fallen. Samsung Electronics initially said it would not physically cut production but later revised that stance. Since inventory is still too high, even if supply is reduced, the price increase effect will not be significant, making it difficult for semiconductor-driven export sluggishness to recover quickly."

The decline in exports to China is also severe. Exports to China have decreased for 11 consecutive months from June last year (-0.8%) through April this year. Export value dropped 26.5% from $12.949 billion in April last year to $9.516 billion in April this year.

Export sluggishness is having a direct impact on South Korea's manufacturing sector. Manufacturing production has declined for six consecutive months from October last year (-2.8% year-on-year) to March this year (-7.5%). In particular, semiconductor production has decreased for ten consecutive months from August last year to March this year. Consequently, employment in manufacturing, considered quality jobs, has also worsened. Manufacturing employment in March this year fell by 49,000 compared to the same month last year, marking a decline for three consecutive months.

Ultimately, the key to South Korea's economic growth lies in the recovery of exports. The government has set an export target of $685 billion for this year, but achieving this goal appears difficult at present. The cumulative export value from January to April this year is $201.2 billion (monthly average of $50.3 billion), meaning $483.8 billion must be exported over the remaining eight months to meet the target. This requires monthly exports of $60.5 billion. An official from the Ministry of Trade, Industry and Energy said, "The annual export target is ambitious, and we plan to mobilize all export support capabilities to achieve it," adding, "To accelerate export recovery in the short term, we will strengthen support for expanding entry into promising markets, including China, where the reopening effect is expected to become visible. In the medium to long term, we will actively pursue policy support such as investment in technology development in semiconductors, secondary batteries, and bio sectors, the creation of specialized advanced strategic industrial complexes, and expansion of tax credits for facility investment."

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