Trade deficit woes weigh on Korean economy
Korea suffers $1.71 billion in loss in May on soaring energy prices
Korea suffered a trade deficit of $1.71 billion (2.12 trillion won) in May, due largely to a robust export performance being overshadowed by a short-term spike in key commodity import prices, government data showed, Wednesday.
The sustained trade deficit over the past two months is expected to weigh heavily on the country’s export-reliant economy, as indicated by a widening fluctuation in the price of key input materials for manufacturing, including crude oil, minerals, as well as food, amid global geopolitical volatility. Some market watchers say Korea may see an annual trade deficit this year, a highly concerning, yet probable scenario for an economy in which exports are powered by the manufacturing of final goods and services from the import of intermediate goods. Further anchoring the pessimistic view is the market consensus on the steeper price hikes in global commodities in the second quarter of this year, hobbled further by Russia’s invasion of Ukraine and China’s COVID-19 lockdowns.
Data from the Ministry of Trade, Industry and Energy showed that the country’s exports stood at $61.52 billion in May, up 21.3 percent from a month earlier.
However, the second-largest export figure of all time, and the largest May figure to date was undermined by imports rising at a faster month-on-month rate of 32 percent to $63.22 billion.
This situation led to a $1.71-billion trade deficit this month, the second consecutive month of such a deficit after April’s $2.51 billion figure.
Wednesday’s export figures surpass the previous all-time high of $50.7 billion in May of last year by over $10 billion.
Korea’s exports have registered continued growth for the past 19 months, including double-digit growth over 15 months. This growth is a notable feat given the soaring prices of goods and services, compounded by what now amount to years of global supply chain disruptions. But the record performance in exports is more than matched by imports that have exceeded $60 billion for three consecutive months since March.
Korea’s imports have climbed faster than exports every month since June of last year. The yearlong trend is explained in large part by energy imports including crude oil and liquefied natural gas (LNG), which amounted to a combined $14.75 billion in May, up 84.4 percent month-on-month. The shift in the trade balance is a cause for concern, according to Seoul National University economist Lee In-ho.
Korea’s exports, as measured by semiconductor and automobile manufacturing volume, have thrived amid the COVID-19 pandemic over the past few years, in his view, but their achievements are marred by unexpected risk factors from global tensions in Ukraine and China.
“The Russia-Ukraine military tension prompted a spike in global energy prices and agricultural produce, a bleak development for consumers and businesses around the world. China’s lockdowns on top of that add to the risk of operating losses for local businesses,” he said.