Trade Deficit Projected at $1.2 Billion in Second Half... Auto Exports Decline, Semiconductors Expected to Recover by Year-End

Korea International Trade Association Announces Export-Import Outlook for Second Half
"Expecting U-Shaped Trade Balance Recovery Rather Than V-Shaped"

There is a forecast that South Korea will record a trade deficit of $1.2 billion in the second half of the year. While the deficit trend may bottom out after the first half, it is expected to show a gentle recovery in a U-shaped pattern rather than a rapid rebound.

Although the semiconductor industry, a major export item, is expected to recover in the second half, there may be a lag of at least one quarter before this leads to an increase in export value. Automobile exports, which were a driving force in the first half, are expected to decline in the second half due to reduced global demand.

Trade Deficit for This Year Expected to Reach $29.5 Billion

The Korea International Trade Association (KITA) held a press conference on the morning of the 28th at the Trade Tower in Samseong-dong, Seoul, to announce the export outlook for the second half of the year.

KITA forecasted that exports in the second half will decrease by 3.1% year-on-year to $322.7 billion. Since exports declined in the fourth quarter of last year, the decrease is not large, but exports of items such as semiconductors (-4.3%), computers (-19.5%), and petroleum products (-16.8%) are expected to decline, making overall export contraction inevitable. However, some items such as ships (20.8%), petrochemicals (8.1%), wireless communication (7.6%), and displays (6.4%) are expected to see increased exports in the second half.

In the case of semiconductors, the industry may improve in the second half due to memory production cuts and a reduction in price declines, but it is expected to take time before this leads to an increase in export value. Automobile exports may turn to a decline in the second half due to reduced global demand. Petroleum products are expected to experience negative growth due to continued oil price declines, and general machinery will be affected by increased self-sufficiency in China, the largest export market.

The trade deficit in the second half is expected to be $1.2 billion. KITA explained that the deficit could continue to shrink as imports decrease faster than exports. Imports in the second half are expected to record $323.9 billion, down 12.4%, due to stabilized oil prices and lower energy import costs.

On an annual basis, exports are projected to decrease by 7.7% year-on-year to $630.9 billion, imports to decrease by 9.7% to $660.5 billion, and the trade deficit to be $29.5 billion. Compared to last year's trade deficit of $47.8 billion, this shows improvement, but the total trade volume this year ($1.2914 trillion) is expected to decrease by $123.6 billion from last year ($1.415 trillion).

"Diversification of Export Items and Markets is Essential... Support Policies Must Be Reviewed"

KITA assessed that the domestic economic downturn has bottomed out after May and June. This means the timing for a rebound in trade surplus is approaching. However, rather than a sharp V-shaped rebound, a U-shaped gentle recovery is expected from the fourth quarter. Jung Manki, Vice Chairman of KITA, said, "It is difficult to say that the situation has turned just because there was a temporary monthly surplus. A U-shaped recovery is inevitable."

The background for this outlook includes factors such as ▲global economic contraction due to US interest rate hikes and ▲delayed economic recovery following China's transition to a 'with COVID' policy. Since US interest rate hikes are expected to continue until the end of the year, macroeconomic risks have not yet disappeared. Although there were expectations that the local market would revive with China's transition to 'with COVID,' clear signs of recovery have not yet appeared. This is an unfavorable factor for South Korea's exports, which are highly dependent on China.

For semiconductors, the market is expected to recover starting in the third quarter as shipments of some IT devices such as mobile phones turn to recovery. In the second half, demand for server and mobile replacements may reduce the price decline of DRAM. NAND flash prices are currently near the bottom and are expected to recover from the third quarter. However, there is expected to be a lag of at least one quarter before these market changes affect South Korea's semiconductor exports, as accumulated inventory must be depleted first.

KITA evaluated that to improve trade performance, it is necessary to improve the export structure rather than just watching external economic trends. In particular, changes in the relationship with China, which marked the 30th anniversary of diplomatic relations last year, are inevitable. In the past, South Korea exported intermediate goods and China produced and sold finished products in cooperation, but now they have become competitors. Cho Sanghyun, Director of KITA's International Trade and Commerce Research Institute, said, "The sweet honeymoon relationship has now turned into a tough competitive relationship," adding, "We need to view China from the perspective of changed game rules."

KITA also argued that the traditional practice of focusing on 13 major items to assess domestic trade scale and soundness should be abandoned. Since the major items account for about 70%, dependence is high, but diversification of items and securing additional key markets are necessary. The argument is that additional items such as bio, defense, and nuclear power, as well as market development in Eastern Europe, the Middle East, and Central Asia, are needed. KITA advised, "The industrial structure must be radically transformed so that new growth industries become the main industry groups, and support policies should be reviewed and investments increased."

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