South Korea ex­ports shrink in Q1, down­ward turn likely to con­tinue

The China Post - - COMMENTARY -

South Korea’s ex­ports dropped 4.2 per­cent from a year ear­lier in March, fol­low­ing the 0.7 per­cent and 3.4 per­cent losses in Jan­uary and Fe­bru­ary, re­spec­tively, ac­cord­ing to data re­leased by the cen­tral bank last week.

Ex­perts at­trib­uted the fall in ex­ports in the first quar­ter to a com­bi­na­tion of a weak Ja­panese yen, a slower- than- ex­pected global eco­nomic re­cov­ery and slid­ing in­ter­na­tional crude prices that are re­duc­ing prof­its of the coun­try’s petro­chem­i­cal prod­ucts ex­porters.

Un­fa­vor­able com­merce con­di­tions abroad are ex­pected to con­tinue to drag down South Korea’s ex­ports in the sec­ond quar­ter. Its lead­ing ex­port in­dex for the AprilJune pe­riod came to 48.5 points, down 3.5 points from the pre­vi­ous quar­ter, ac­cord­ing to a sur­vey by the Korea Trade-In­vest­ment Pro­mo­tion Agency (KOTRA) on 2,229 trad­ing com­pany of­fi­cials and for­eign buy­ers last month.

A read­ing over 50 sig­nals ex­ports will fare bet­ter than the pre­vi­ous quar­ter, while lower fig­ures in­di­cate over­seas ship­ments will de­crease. The lat­est quar­terly fig­ure marked the first time the in­dex fell be­low the bench­mark since the Oc­to­ber-De­cem­ber pe­riod of 2009, when KOTRA be­gan to com­pile it.

Over the past years, ex­ports have made shrink­ing con­tri­bu­tions to South Korea’s eco­nomic growth. The con­tri­bu­tion rate, which surged to 202.7 per­cent in 2011, slid to 121.7 per­cent in 2012, 82.7 per­cent in 2013 and 45.5 per­cent last year, the low­est in five years, fig­ures from the Bank of Korea (BOK) showed.

BOK an­a­lysts said the drop in ex­ports’ con­tri­bu­tion to growth was at­trib­uted not only to the slug­gish pace of in­crease in over­seas ship­ments but to ex­pand­ing por­tions of con­sump­tion and in­vest­ment. Con­sumer spend­ing and cor­po­rate in­vest­ment con­trib­uted 1.3 per­cent­age points and 1.5 per­cent­age points each to South Korea’s eco­nomic growth last year.

What is wor­ri­some, how­ever, is do­mes­tic spend­ing also re­mains weak and shows no signs of pick­ing up any­time soon. Slug­gish do­mes­tic con­sump­tion re­sulted in im­ports shrink­ing at a faster pace than ex­ports in re­cent years, with the coun­try record­ing the largest monthly trade sur­plus of US$8.39 bil­lion in March.

‘Un­bal­anc­ing phe­nom­e­non’

Con­cerns are ris­ing that Asia’s fourth-largest econ­omy may be dragged into de­fla­tion. South Korea’s con­sumer price hike rate re­mained far be­low 1 per­cent for the fourth con­sec­u­tive month in March.

In con­trast to slug­gish con­sumer spend­ing and cor­po­rate in­vest­ment, real es­tate and stock mar­kets are be­ing boosted by a ris­ing inflow of float­ing cap­i­tal. The num­ber of apart­ments that changed hands last month recorded a six-year high and the Korea Com­pos­ite Stock Price In­dex last week soared to its high­est level in a year.

This un­bal­anc­ing phe­nom­e­non sug­gests a string of stim­u­lus mea­sures taken by the gov­ern­ment, cou­pled with the cen­tral bank’s de­ci­sion last month to cut its key rate to a record low of 1.75 per­cent, have re­sulted in chan­nel­ing in­creased money sup­ply into as­sets mar­kets, rather than into ex­pand­ing pro­duc­tion and spend­ing.

Ac­tive prop­erty trans­ac­tions are ac­com­pa­nied by a sharp rise in house­hold debt, which is hold­ing down con­sumer spend­ing. The dis­crep­ancy be­tween com­pa­nies’ de­te­ri­o­rat­ing prof­its and their ris­ing stock prices could not be deemed to last long and might have a se­vere ad­verse im­pact on the econ­omy.

A fun­da­men­tal, long-term eco­nomic re­cov­ery can be en­sured only when float­ing cap­i­tal flows into boost­ing con­sumer ex­pen­di­ture and cor­po­rate in­vest­ment. The gov­ern­ment should be more dras­tic and cre­ative in work­ing out and im­ple­ment­ing stim­u­lus poli­cies. It is also im­por­tant to com­plete key re­form tasks in the la­bor, fi­nance, ed­u­ca­tion and public sec­tors, as en­vi­sioned, in or­der to help boost na­tional com­pet­i­tive­ness and growth po­ten­tial. This ed­i­to­rial was pub­lished by The Korean Her­ald on April 4th

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