Semiconductor Slump Causes Export Value Index to Drop 13.5%... Terms of Trade Worsen for 24 Consecutive Months

by Seo Sojeong

Published 26 Apr.2023 12:00(KST)

Import Value Index Falls 6.6%

The price of semiconductors, South Korea's main export product, declined, causing the export value index last month to fall by 13.5% compared to a year earlier. The import value index also decreased by 6.6% due to reductions in mining products, computers, electronics, and optical equipment. As export prices fell more sharply than import prices, the terms of trade deteriorated for the 24th consecutive month.

According to the 'March Trade Index and Terms of Trade' (based on the dollar) statistics released by the Bank of Korea on the 26th, the export value index last month dropped 13.5% from a year earlier. The export value index has been declining for six consecutive months: -6.6% in October last year, -11.5% in November, -12.3% in December, followed by -18.1% in January this year, -7.0% in February, and -13.5% in March.

By item, transportation equipment increased by 38.9%, but computers, electronics, and optical equipment (-34.6%) and chemical products (-14.1%) sharply decreased.

The export volume index fell by 2.4% compared to the same month last year. Transportation equipment (36%) and coal and petroleum products (9.9%) increased, but computers, electronics, and optical equipment (-15.7%) decreased.

The import value index in March fell by 6.6% compared to a year earlier, while the import volume index remained flat. The import value index increased for electrical equipment (29.7%) and transportation equipment (12.6%), but decreased for mining products (-9.7%) and computers, electronics, and optical equipment (-12.4%).

The export-import value index is an indicator calculated by dividing the export-import value at the given time (in dollars) by the export-import value at the base period (2015), and the export-import volume index is calculated by dividing the export-import value index by the export-import price index.

Export Prices Fell More Sharply Than Import Prices

The net commodity terms of trade index fell by 5.1% compared to a year earlier, marking the 24th consecutive month of decline. This is the longest period of decline since the 28 consecutive months of deterioration from December 2017 to March 2020. Export prices (-11.3%) fell more sharply than import prices (-6.6%), worsening the terms of trade.

The net commodity terms of trade index is the ratio of the price of one unit of exported goods to the price of one unit of imported goods, indicating how much imported goods South Korea can obtain per unit of export.

The income terms of trade index fell by 7.4% over the same period, marking 14 consecutive months of decline. This is because the export volume index fell (-2.4%) last month and the net commodity terms of trade index (-5.1%) also declined. The income terms of trade index shows the total quantity of goods that can be imported with South Korea's total export value.

Seojeong Seok, head of the Price Statistics Team at the Bank of Korea, explained, "The 2.4% decline in the March export volume index is a smaller negative compared to the average decline of 6.1% in January and February. This is due to an increase in export volume of transportation equipment driven by strong exports of eco-friendly vehicles." He added, "The terms of trade have deteriorated for 24 consecutive months because export prices fell more sharply than import prices due to weakness in major export products such as semiconductors."

[Image source=Yonhap News]