[Why&Next] Diverging Forecasts for Exports in the Second Half of the Year

Government: "Will Turn to an Increasing Trend"
Industry Research Institute -5.2% · Korea International Trade Association -3.1% Forecast

Although the trade balance in June successfully turned to a surplus for the first time in 16 months, export forecasts for the second half of the year remain mixed. While the government expects a 'shift to an upward trend,' research institutions predict that a rebound will be difficult.

On the 3rd, Kim Wanki, Director of the Trade and Investment Office at the Ministry of Trade, Industry and Energy, said in a phone interview with Asia Economy, "Even excluding semiconductors, there is a recovery trend in exports of Korea's 15 major items such as automobiles, and other items are also showing an increasing export trend. Besides China, markets such as the United States, the European Union (EU), and the Middle East are covering a significant portion, so if this continues, exports are expected to improve in the second half without any special reasons," he said.

According to the Ministry of Trade, Industry and Energy on the 1st, the trade balance in June recorded a surplus of $1.13 billion, ending a 15-month continuous trade deficit since March last year (-$200 billion). The ministry expects that although the improvement in the trade balance may temporarily pause in July and August due to seasonal factors such as summer vacations, the surplus trend will continue thereafter.

In particular, automobile exports have shown strong performance exceeding $6 billion every month since March, reaching a record high export performance for a half-year period in June ($35.66 billion). Semiconductors (-28.0%) still faced a decline in June but recorded the highest export amount this year ($8.9 billion). The export decline rate in June was the lowest this year. Last month's export amount was $54.24 billion, down 6.0% compared to the same month last year ($57.7 billion). The export decline rate had decreased from -16.4% in January to -7.7% in February, then rose to -15.2% in May, but it narrowed again to the lowest level this year.

Director Kim explained, "Although it will be difficult for semiconductor exports to turn to an increase, the production cut effects will appear in the second half, and demand for high value-added products such as high-capacity DDR5 semiconductors is rising, so the decline will ease. Exports to China have not shown the reopening effect as quickly as expected, but since exports exceed $10 billion every month in absolute terms, we see some gradual recovery," he said.

(Photo) [Image source=Yonhap News]

'Second Half Export' Industry Research Institute -5.2% · Korea International Trade Association -3.1% ... Hyundai Research Institute +1.2%

Export forecasts for the second half of this year are also divided among domestic research institutions. First, the Korea Institute for Industrial Economics and Trade expects exports in the second half to decrease by 5.2% compared to the same period last year. The institute had predicted a 12.7% decline in exports for the first half, which is similar to the actual performance (-12.3%). Hong Seongwook, a research fellow at the institute, explained, "The decline in exports of ICT sectors such as semiconductors is mainly due to price factors, so it is necessary to pay attention to the effectiveness of price adjustments through production cuts in the future. In terms of volume, global demand recovery is expected in the second half, but the recovery speed is expected to be slow."

The Korea International Trade Association expects exports in the second half to decrease by 3.1% compared to the same period last year. Although the decline is expected to be smaller than that of the Industrial Research Institute, a rebound is considered difficult. A KITA official said, "Exports in the second half are expected to slow the decline due to the base effect from the poor export performance in the fourth quarter of last year. Semiconductor exports are expected to improve from early fourth quarter with global demand and industry conditions, but automobile exports, which led the export boom until the first half, are expected to decline due to reduced global demand."

On the other hand, the Hyundai Research Institute predicted that exports in the second half will increase by 1.2% compared to the same period last year, turning positive. A Hyundai Research Institute official said, "Currently, the domestic economy seems likely to follow a 'U'-shaped path where exports rebound in the second half and the domestic market improves, creating a turning point and entering a recovery phase. However, if export stagnation continues or consumption no longer serves as an economic safety net in the second half, the possibility of a long-term 'L'-shaped recession cannot be ruled out," expressing concern.

Academia: "Second Half Export Situation Improves... But Not Enough to Boost Growth Rate"

In related academia, there is consensus that the export situation in the second half will be somewhat better than in the first half, but there is no sign of a turnaround strong enough to raise the overall economic growth rate. This recent surplus was more influenced by a decrease in imports due to falling oil prices than by export improvement. Kang Insu, professor of economics at Sookmyung Women's University, pointed out, "Both exports and imports decreased, but imports decreased more, resulting in a surplus in June. It is hard to say this happened because the economy improved."

Also, unless there are sudden changes in energy prices, the trade surplus is expected to continue in the second half as it is now, but there is no momentum to create a clear rebound. Sung Taeyoon, professor of economics at Yonsei University, said, "The reduction in the amount of export decline does not mean a reversal. It can be expressed as 'it will not worsen further.'"

The international economic situation affecting overseas demand is also a variable. Heo Yoon, professor at Sogang University Graduate School of International Studies, said, "Whether the US-China confrontation will show a conciliatory tone, and whether the Russia-Ukraine war will become a long-term conflict or end shortly, are also important variables." Seok Byunghun, professor at Ewha Womans University, expressed concern that if the 'weak yen phenomenon' continues, price competitiveness in export competition with Japan may decline. Professor Seok said, "As the weak yen phenomenon prolongs, especially Japanese cars exported to the US are increasing. Automobiles, which make up a large part of export items, may be hit in competition with Japan."

Regarding exports to China, although the semiconductor market may revive and reopening effects may appear in the second half, overall export amounts are expected to have difficulty increasing significantly. Professor Seok said, "The People's Bank of China is trying to lower interest rates to stimulate the Chinese economy, but the pace is slower than market expectations, which is problematic. Since the Chinese economy is recovering slower than expected, exports to China are expected to remain sluggish."

There were also calls for urgent diversification of export markets. Professor Kang said, "We need to more actively expand advanced markets such as the US and Europe, and also pay attention to markets in India and ASEAN countries. Unlike the previous administration, increased exports in defense and nuclear sectors will also help," he said.

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