Korean Export Slump Deepens as Lunar New Year Hits Shipments

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A decline in South Korean exports worsened in January despite signs of green shoots in global trade as the Lunar New Year holiday reduced the number of working days at the end of the month.

Exports shrank 6.1% from a year earlier, following a 5.2% drop in December, trade ministry data showed Saturday. Economists had forecast an 8.6% decline. Shipments of semiconductors, the country’s biggest export, contracted 3.4%, the smallest decrease since a 8.4% drop in December 2018.

The trade report may appear to contradict signs of a manufacturing rebound, but the Lunar New Year is making the data look worse than they really are. The holiday was in late January this year after falling in February last year, cutting the business calendar by 2.5 days and skewing year-on-year comparisons.

Key Insights

• South Korea is a barometer of global trade as it’s the world’s biggest source of memory chips, which go into everything from computers to smartphones.
• The Bank of Korea stood pat on policy in January after cutting rates twice last year. The economy grew 2% in 2019, the slowest pace since the global financial crisis, but momentum improved in the fourth quarter. The BOK forecasts 2.3% growth for this year.
• The government plans to front-load its spending this year to speed up an economic recovery.
• China’s coronavirus outbreak has the potential to partly slow the momentum that the U.S.-China trade deal offers for South Korea’s economic recovery, according to economists including Oh Jae-young at KB Securities.
• The virus threatens to cut China’s economic growth to below 5% this year, undermining domestic consumption, said Seo Jeong-hun, an analyst at KEB Hana Bank. “That could hurt South Korea’s chip exports too,” he said.
• Other risks remain for South Korea. Its trade spat with Japan isn’t fully resolved and trade tensions between the U.S. and China could flare up again. Inflation remains well below the BOK’s 2% target.

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• Imports declined 5.3% from a year earlier, giving a surplus of $620 million.
• While South Korea’s shipments to Hubei province account for 0.3% of the total, any prolonged crisis caused by the virus outbreak could hit exports to China as a whole from February, as that’s when economic activity picks up there, the ministry said.
• Korea’s exports are likely to return to growth in February if the current trend continues, the ministry said.
• Exports to China, South Korea’s biggest trade partner, declined 10.5%
• Exports to the U.S. fell 7%, shipments to Japan were down 6.4%.
• Automobile shipments decreased 22.2%; those of wireless communication devices fell 23.2%

--With assistance from Daedo Kim and Kanga Kong.

To contact the reporter on this story: Sam Kim in Seoul at skim609@bloomberg.net

To contact the editors responsible for this story: Paul Jackson at pjackson53@bloomberg.net, James Poole

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