Concerns Grow Over 'Sangjeohajeo' Pattern in Korean Economy Amid Prolonged Trade Deficit (Comprehensive)

The trade balance deficit has continued for 15 consecutive months as semiconductor and exports to China have prolonged sluggishness. The semiconductor industry's downturn is exerting downward pressure on the economic growth rate, raising concerns that the economic trend will be 'low in the first half and low in the second half' rather than the initially expected 'low in the first half and relatively high in the second half.'

According to the Korea Customs Service on the 22nd, the trade balance recorded a deficit of $4.304 billion as of the 20th of this month. The trade deficit has continued for 1 year and 3 months since March last year (-$20 million). During the same period, exports (provisional customs clearance basis) amounted to $32.443 billion, down 16.1% year-on-year, and imports were $36.747 billion, down 15.3%, respectively. The number of working days during this period was 14.5 days, 0.5 days fewer than the same period last year (15.0 days). Considering the number of working days, the average daily export amount was $2.24 billion, down 13.2%.

Prolonged Delay in Semiconductor Industry Recovery

Exports also continued a negative trend for eight consecutive months from October last year to May 20 this year. The continuous deterioration in exports is due to the delayed recovery of the semiconductor industry. During this period, semiconductor exports amounted to $4.26 billion, down 35.5% year-on-year. This means that the decline in exports has continued for 10 consecutive months since August last year (-7.8%).

The sharp decline in semiconductor exports is due to the prolonged and more severe-than-expected price drop of products such as DRAM this year. The fixed transaction price of PC DRAM general-purpose products (DDR4 8Gb) fell from $4.10 in the third quarter of 2021 to $1.45 last month. The immediate reduction in semiconductor exports negatively affected exports in the information and communication technology (ICT) sector. During this period, computer peripherals (-47.3%), home appliances (-36.6%), and wireless communication devices (-0.8%) all decreased.

The problem is that the longer the semiconductor industry's recovery is delayed, the greater the concern that South Korea's economic growth rate may further decline in the second half of the year. According to the Korea Development Institute (KDI) report titled 'Recent Semiconductor Industry Trends and Macroeconomic Impact,' a 20% decrease in semiconductor export volume is estimated to reduce the gross domestic product by 0.15%. The actual annual economic growth forecast has also fallen below initial expectations. The Bank of Korea predicted an economic growth rate of 2.1% for this year as of August last year but lowered it to 1.6% in February this year, a 0.5 percentage point drop in just six months. KDI also recently lowered its growth forecast for the first half of 2023 from 1.1% to 0.9% and for the second half from 2.4% to 2.1%, projecting an annual growth rate of only 1.5%.

Missed Expectations for China Reopening Effect

The effect of China's reopening (resumption of economic activities) has also fallen far short of expectations, increasing concerns. During this period, the trade balance with China recorded a deficit of $1.197 billion, continuing for 11 consecutive months since June last year. The prolonged trade deficit with China is due to China's reopening focusing on domestic consumption, limiting its impact on the South Korean economy.

According to a survey titled 'Perceptions on the Sluggish Exports to China' released by the Korea Chamber of Commerce and Industry on the 10th, 84.3% of respondents believe that recovery of exports to China within this year will be difficult, heightening anxiety. This is because China's first-quarter economic growth rate was 4.5%, below the market expectation of 5.0%. Another issue is the decreasing proportion of intermediate goods exports to China. Although intermediate goods account for about 77.6% of South Korea's exports to China, China has been strengthening its domestic industrial technology and increasing the self-production ratio of intermediate goods. This is why there are calls to revise the initial KDI forecast that predicted a gradual economic recovery in the second half due to China's economic recovery and semiconductor downturn easing.

Due to sluggish semiconductor and exports to China, the annual trade balance recorded a deficit of $29.548 billion as of the 20th of this month, approaching $30 billion. This year's annual export amount is $233.376 billion, and imports are $262.923 billion, down 13.5% and 6.6%, respectively, compared to the same period last year. The total annual trade deficit amounts to 62.6% of last year's record-high deficit (-$47.23 billion).

However, the monthly trade deficit has been decreasing since the beginning of this year. The January trade deficit recorded a monthly record high of -$12.65 billion but decreased to -$5.31 billion in February, -$4.62 billion in March, and -$2.62 billion in April. This is because the proportion of energy imports has decreased. As of the 20th of this month, the three major energy sources?crude oil (-21.2%), gas (-14.3%), and coal (-41.1%)?all decreased, raising the possibility of export recovery. Experts predict that if energy imports decrease further in the second half of this year, the trade balance could turn to a surplus as early as July or August.

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