Korea’s declining service exports counter global trend

Korea’s service exports displayed months of declines over the past year, going against the global pattern of a rapid post-pandemic recovery in sectors such as tourism, transport, content, information technology, and health care.

Experts say sustained decreases over the four consecutive quarters undermined the otherwise robust exports of semiconductors, which serve as a crucial growth driver for the country and account for approximately a fifth of its outbound shipments.

No immediate turnaround is expected from the service industry, as the National Assembly has been unsuccessful in passing bills aimed at strengthening key service sectors for decades. This failure is attributed to conflicting interests among the stakeholders involved.

The government has not implemented follow-up measures to President Yoon Suk Yeol’s previous commitment to make Korea become the world’s 10th-largest service export country by 2027. Presently, Korea ranks 15th in terms of service exporters and is the world’s sixth-largest exporter of goods.

Data from the Organization for Economic Cooperation and Development (OECD) showed Korea’s service exports in the third quarter of last year stood at $30.11 billion (40 trillion won), down 7.6 percent from the same period a year before.

This was the second-steepest decline after Denmark, whose figure dropped 20 percent in the same period.

Korea’s service exports registered a decline of 5.8 percent in the fourth quarter of 2022 and also fell during the following year.

The consecutive decline is the longest among the 39 OECD member countries, experienced by Korea and Israel only.

In contrast, the OECD average showed an increase of 4 percent in the fourth quarter of 2022. The figure climbed further by 7.4 percent and 8 percent the following quarters.

The average OECD service exports registered an increase of 9.7 percent in the third quarter of last year, while Korea’s figure slipped 7.6 percent.

Korea was among the only six economies with dwindling service exports in the third quarter despite global trade volume inching up last year.

Advanced economies rely significantly on services for GDP growth, a trend not seen in Korea.

World Bank data showed the service industry accounted for 77.6 percent of the U.S.’ GDP in 2021. The figure was 69.5 percent for Japan, followed by Germany at 62.9 percent. The OECD average was 71 percent. The figure for Korea stood at 57 percent.

Manufacturing accounts for 25 percent of Korea’s GDP, higher than Germany’s 19 percent and Japan’s 20 percent.

Korea’s service exports topped $103 billion in 2018, but plunged to $89.6 billion in 2020. The figure recovered to $119.9 billion in 2021 and stood at $130.2 billion in 2022.

Services accounted for 15.8 percent of Korea’s exports as of the third quarter of last year, about half of G7 members’ average of 29.9 percent. The G7 members are Canada, France, Germany, Italy, Japan, the U.K. and the U.S.