Korea’s Exports Recovery on Track With Smaller Daily Drop

(Bloomberg) --

South Korea’s exports slump continued to ease in August based on average daily figures, suggesting global commerce is picking up momentum as more economies reopen from lockdowns.

While overseas shipments fell 9.9% in August from a year earlier, a larger drop than in July, the decline in the daily average narrowed to 3.8%, the trade ministry said Tuesday. The divergence in the figures stems from fewer working days in August this year compared with 2019.

The monthly data showed exports to China fell 3% in August from the previous year, while semiconductor shipments increased 2.8%.

The smaller daily contraction adds to hopes that the worst is over for South Korean exports, though with Covid-19 still rampant across major economies, the ongoing pandemic remains a significant risk. South Korea’s trade data are a barometer of the global economy’s health because its companies are deeply embedded in supply chains.

A separate report from the Bank of Korea showed gross domestic product shrank a revised 3.2% in the second quarter compared with the prior three months, slightly better than the initial estimate, as the final readings for facilities investment and consumption were better.

Key Insights

• Exports are crucial for South Korea’s economy, which is expected to shrink this year for the first time since the late 1990s Asian financial crisis. The BOK lowered its forecast for this year to a 1.3% contraction last week, citing a slower-than-expected export recovery and the resurgence of the virus at home that’s weighing on consumption.
• “The global economy has emerged from an extreme contraction, yet the pace of recovery remains sluggish,” said So Jaeyong, an economist at Shinhan Bank. It probably won’t be until next year that exports will restore the kind of strength displayed before the pandemic, he added.
• The rekindling of tensions between the U.S. and China poses another threat to South Korean exports. China is the biggest buyer of South Korean goods, which often get assembled into products shipped to the U.S. and elsewhere. Tightening U.S. curbs on Huawei Technologies Co. in particular threaten to disrupt semiconductor sales to China by South Korean companies.
• Falling prices of memory chips have already emerged as a concern for semiconductor exporters like Samsung Electronics Co. and SK Hynix Inc. While they benefited from the work-from-home shift this year, the outlook is growing uncertain as the pandemic saps demand for smartphones and other consumer appliances that use semiconductors.

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• The 3.5% decline in South Korea’s average daily shipments was the smallest drop since the pandemic struck, the ministry said.
• For the whole month of August, South Korea’s exports to the U.S. fell 0.4%, while those to the European Union decreased 2.5%. Still, daily average shipments to the two regions and also to China all posted gains, the trade ministry statement showed. There were 1.5 fewer working days in August compared with a year earlier.
• Computer shipments surged 107% in the month, while exports of bio and health products rose 59%. Sales of consumer appliances rose 15%.
• Overall imports declined 16% from a year earlier in August, leaving a trade surplus of $4.1 billion.

©2020 Bloomberg L.P.