beijingwalker
ELITE MEMBER
- Joined
- Nov 4, 2011
- Messages
- 65,193
- Reaction score
- -55
- Country
- Location
Korea reports record annual trade deficit, the first in more than a decade in 2022, more weakness forecast
January 16, 2023Korea reported its largest trade deficit ever and the first in more than a decade in 2022.
The big negative number, which is a big problem for an export-dependent country, was the result of a combination of higher oil prices and weak demand for Korean products, plus a weak Chinese economy.
Last year, the trade balance was a negative $47.47 billion, according to the Korea Customs Service. It's the biggest deficit since the number was first recorded by the service in 2000 and followed a $29.3 billion surplus in the year earlier period.
The outlook is not promising.
In the first 10 days of January, Korea’s trade balance was a negative $6.27 billion on a decline in the export of semiconductors and machinery.
Full year, the Korea Institute for Industrial Economics & Trade (KIET) predicted last November a deficit of $26.6 billion, with exports down 3.1 percent and imports down 5.1 percent.
The institute cited weaker global demand and the “intensifying” slowdown in semiconductor business as the reasons for a trade deficit, despite stabilizing raw material prices and a stabilizing won.
Due in part to weak exports, the central bank has suggested a recession may be possible in 2023.
“The first half of this year is expected to be difficult due to sluggish exports or a slowdown in the international economy,” Bank of Korea Gov. Rhee Chang-yong said at a press conference last week, adding that it will put Korea on the “borderline” of a recession.
The bank’s "November forecast for growth was 1.7 percent,” he said. “It’s been a little more than a month, but the growth is highly likely to fall short considering the recent indicators.”
Rhee cited the rapid spread of the coronavirus in China and a decline in the semiconductor sector as reasons for the change of forecast.
Semiconductors were 18.9 percent of exports in 2022 and 17.7 percent of facility investment.
The worldwide semiconductor market is expected to decline in size by 4.1 percent to $557 billion this year, according to World Semiconductor Trade Statistics (WSTS).
It said inflation is weakening demand in the end markets, especially those exposed to consumer spending.
“Chip sales plummeted due to lower demand from server clients, data centers and handset makers,” said Samsung Electronics on Jan. 6.
It posted a 4.3-trillion-won ($3.48 billion) operating profit in the fourth quarter, the lowest since the third quarter of 2014.
Global sales of memory is projected to fall 17 percent this year to $112 billion this year, according to the WSTS.
Memory chips are premade and sold to clients in advance, and inventory is up. System chips are produced after an order has been placed so inventory is rare, according to Ahn Ki-hyun, a senior executive at the Korea Semiconductor Industry Association.
For PCs, OEMs hold around 9 to 13 weeks of PC DRAM inventory and smartphone brands 5 to 7 weeks of mobile DRAM inventory on average, according to TrendForce last week.
“The semiconductor industry, which faces a historically bad situation, is expected to stay weak until the excessive inventory stabilizes in the late second quarter or early third quarter,” said Song Myung-sup, an analyst at Hi Investment & Securities. “Demand will recover when the clients start to restock inventory in the third quarter and demand recovers in the fourth.”
To boost the sector, the Finance Ministry announced earlier this month an increase in the tax credit for semiconductor investment from the current 8 percent to 15 percent for big companies, and to 25 percent from 16 percent for small and medium-sized companies.
The increase needs to be approved by the National Assembly, but the government is determined to encourage semiconductor investment and exports.
“Like in other major countries, semiconductors are a very important industry for national strategy,” said Finance Minister Choo Kyung-ho at a press conference on Jan. 12. The ministry “believes additional support is needed for the semiconductor sector."
The weak Chinese economy is another factor.
Korea’s exports to China fell for seven months straight, sliding 27.1 percent on year in December alone.
The country was Korea’s largest trade surplus market in 2018. But the ranking fell to second in 2019, third in 2020 and 2021, and plunged to 22nd last year.
Covid lockdowns, a slump in home prices and fears of recession affected consumer spending in China.
China’s consumer confidence index, a closely-watched number calculated by China’s National Bureau of Statistics, dropped below 90 in April to a record low. It then fell further, with the November figure reaching 85.5, according to Statista.
“If China loosens the zero-Covid policy and reopens it borders and economy, that will be a tremendous stimulus for us,” the central banker said in an interview with Reuters in November.
China’s economy is projected to rebound this year as it lifts Covid restrictions. It imposed full-scale lockdowns in places like Shanghai and restrictions that made travel and transportation difficult. But the country abandoned the tight zero-Covid policy early December.
China’s growth is projected to recover to 4.3 percent in 2023 amid a reopening of the economy from last year’s estimated 2.7 percent, said the World Bank in December.
“China’s reopening will reduce Korea’s trade deficit,” said Kim Seung-hyuk, an economist at NH Futures. The level of the reduction will “depend on the speed of China’s reopening.”
Critics are skeptical.
“China’s reopening will be a plus but its impacts could be limited because Korea’s exports to China are largely intermediaries and machinery, not final goods,” said Park Sung-wook, a senior research fellow at Korea Institute of Finance’s macroeconomic research division. “Also, China’s normalization could raise demand for raw materials and further trigger inflation.”
Korea reports record annual trade deficit, more weakness forecast
Korea reported its largest trade deficit ever and the first in more than a decade in 2022.
koreajoongangdaily.joins.com
