South Korea’s Economic Recovery Hints at Global Trade Resilience

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South Korea’s economy continued its rebound from a pandemic slump, with exports and manufacturing activity rising in November, offering a positive sign that global demand remains resilient despite the virus resurgence.

Figures released Tuesday showed exports rose 4% in November from a year earlier, supported by robust demand for tech devices and gains in key markets. The IHS Markit purchasing managers’ index for South Korean manufacturing hit 52.9, the highest since 2011, and showed growing optimism in the factory sector.

Revised overall growth figures for the third quarter also indicated greater momentum in the economy heading into the last quarter as stronger-than-first-estimated investment fueled a faster expansion of 2.1%.

South Korea’s Economic Recovery Hints at Global Trade Resilience

The latest readings will likely strengthen the view that Korea will emerge from the pandemic with less lingering damage than other developed economies as exports offset weakness in domestic consumption.

The gain in Korean exports, a bellwether for world trade, also suggests demand in the global economy is holding up despite record new virus cases in major markets, likely because governments are taking more targeted approaches to containing infections than during prior lockdowns.

Still, risks to the recovery scenario persist, especially if the coronavirus remains uncontrolled overseas and leads to stricter lockdown measures. A delay in the rollout of vaccines could also damp sentiment and business activity.

“Exports mean a lot in South Korea,” said Lee Jae-sun, an analyst at Hana Financial Investment Co. “The momentum in exports recovery should continue into next year and fuel the economy along with stocks.”

The BOK last week said it expects the economy to shrink less in 2020 than earlier projected as exports and investment recover.

What Bloomberg Economics Says

“Looking ahead to 2021, the growth outlook is brighter -- with limited economic scarring, promising vaccine prospects and a likely broader recovery in global demand setting the stage for a rebound.”

-- Justin Jimenez, Economist

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The November trade data showed exports were even stronger when looking at the value of daily shipments, which rose 6.3% last month for the biggest gain since 2018.

Shipments to major markets mostly held up. Exports to China rose 1%, while those to the U.S. increased 6.8%. Exports to the European Union jumped 25%, though shipments to Japan fell 12%.

For products, tech-related goods continued to offer support. Semiconductor shipments increased 16%, as wireless communications devices increased 20% and displays jumped 21%.

Semiconductor purchases by Huawei Technologies Co. ahead of U.S. sanctions helped lift Korean exports in the third quarter, but excess inventory among other buyers remains a concern for chip manufacturers. Research company TrendForce said while demand is projected to remain healthy this quarter, there’s still pressure on prices for memory chips.

While the figures offer an encouraging sign for the trajectory of the economy, recent strength in Korea’s won could constrain the recovery. The won has been one of the strongest currencies in Asia this quarter, though views are mixed on the extent to which exporters are being hurt.

BOK Governor Lee Ju-yeol last week said a strong won has less impact on businesses than in the past, but he warned against herd behavior in markets as currency volatility adds uncertainty for companies.

©2020 Bloomberg L.P.

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