|South Korea managed to contain Covid-19 without strict lockdown but through aggressive tracing and testing efforts. / Photo by yochika photographer via Shutterstock|
South Korea’s exports plunged 24.3% year-on-year in April, the worst decline since the financial crisis in 2008. This decline was caused by the Covid-19 pandemic that knocked demand and affected the global supply chains.
Global trade and South Korea’s exports
The country’s trade ministry data showed that it is, by far, the worst contraction in 11 years. South Korea, the fourth-largest economy in Asia, is known to be a leader in world trade and is the first major exporting country to release its April trade data.
The 24.3% decline is a sharp reversal from the 20.8% increase on March 1 to 10 period. The country’s imports also plunged by 15.9% compared to the 0.3% increase a month before, based on Korea Customs Service data. China is the biggest trading partner of South Korea. However, shipments to China declined by 10.2%. South Korea’s shipments to the US also slumped by 13.5% and in the European Union by 12.8%. South Korea’s average exports per working day fell 17.4%, worse than the 6.9% fall in March.
Capital market company Hi Investment & Securities’ chief economist Park Sang-hyun told the New York Times that May “will be extremely difficult for South Korea’s exports.” A potential dip in the shipment may bottom out this month should Europe and the US start reopen their economies.
Sang-hyun also expects exports to decline at a slower rate beginning June as oil prices may recover and there will be more stimulus from China.
Semiconductors are South Korea’s top export revenue generator but overseas sales of these products also declined by 14.9% while those of wireless devices, car components, and petrochemical products declined by 33.4%, 49.6%, and 56.8% each. Heavily dependent on the exports of these products, the country’s economy is heading for contraction in the first half even after the government rescue packages, supplementary budget, and rate cuts. This just shows how Covid-19 creates a ripple effect on many businesses from travel, to services, and manufacturing sectors.
The trade data reveals that it is a difficult period for international trade since factories are also struggling due to a decline in global demand. There has been a declining export order even from China, the biggest exporter in the world.
|Kia Motors’ affiliate Hyundai Motor also temporarily stopped operations at most of its plants outside South Korea as the Covid-19 outbreak spreads fast. / Photo by Rob Hainer via Shutterstock|
Electronics and automobile sector in South Korea
Financial services company DBS Bank’s economist Tieying Ma shared via Yahoo! Finance that rising corporate bankruptcies and unemployment in major economies may also leave the electronics and automobile sector vulnerable. DBS expects the country’s exports to continue to decline in the double-digits through the third quarter.
Samsung Electronics, along with other tech giants in South Korea, like SK Hynix, declined to share their annual forecasts due to the uncertainty that the pandemic brings. Yet, Samsung Electronics said that they expect their profit to also decline in the second quarter of 2020 since there have been fewer sales of their TVs and smartphones.
South Korean automotive manufacturer Kia Motors has also informed its labor union that it wants to suspend the operations in three of its factories in the country as the pandemic weighs on the exports in the US and Europe. The union, though, has not decided whether they will accept it.
Kia Motors’ affiliate Hyundai Motor also temporarily stopped operations at most of its plants outside South Korea as the Covid-19 outbreak spreads fast.
South Korea has already pledged 240 trillion won ($196.73 billion) worth of stimulus to overcome the economic slowdown. Meanwhile, markets are hoping that the central bank of the Republic of Korea will ease in the coming months. Last March, the Bank of Korea cut its benchmark rate to a record low of 0.75% after other central banks cut rates to support the global economy that is threatened by Covid-19.
Top export countries
Electrical machinery is the top export good of South Korea. In 2018, its total exports reached $605,169,190,000, making it the top 5 country that shipped the highest dollar value in exports. China ranked first with $2,494,230,195,000 total export sales in 2018, followed by the United States ($1,665,992,032,000), Germany ($1,557,176,334,000), and Japan ($738,188,768,000).
The top export goods of South Korea are electrical machinery, industrial machinery, motor vehicles and parts, oil and mineral fuels, plastics, precision instruments, organic chemicals, iron and steel, ships and boats, and iron and steel articles.
The Netherlands is the world’s top 6 export country with $585,622,815,000 export sales, followed by Hong Kong ($569,105,740,000), France ($568,448,540,000), Italy ($543,466,795,000), and United Kingdom ($487,069,299,000), according to trade metrics platform World’s Top Exports.
Multinational investment bank Barclays Bank PLC’s economist Angela Hsieh also explained that the government has supported some exporters by credit measures and financing although these cannot yet fully offset the external shock. Hsieh believes that it will be more effective and direct for the government at this stage to focus on domestic demand to support households and the job market.
How the country contained Covid-19
South Korea managed to contain Covid-19 without strict lockdown but through aggressive tracing and testing efforts. It introduced phone stalls and drive-in centers for Covid-19 testing. On April 30, the country also reported zero new Covid-19 infections for the first time since February. After the recent parliamentary election, where 23 million voters participated, no case was reported following the 14-day incubation period. Director-General for public health Yoon Tae-ho said in a briefing that voters and staff helped disinfect the polling stations and people also observed the 1-meter distance between each other.
South Korean Foreign Minister Kang Kyung-wha said it doesn’t matter that her country is stabilizing because “the world must overcome this together.” She also said that the key to their success is absolute transparency. Securing people’s trust is “vitally important,” she added.
The country’s approach to massive testing and aggressive tracing may have helped soften the economic impact of the pandemic but the increase in joblessness may lead to long-term damage. Global economic data platform CEIC shows that South Korea’s unemployment rate reached 3.80% in March 2020 from 3.30% in February and 4.00% in January. The unemployment rate in the country stood low in August 2019 at 3.10%.
South Korea may be winning the fight against Covid-19 but pressure on the economy may continue to persist in the upcoming months.