[New Year Interview] President of the Korea Institute for Industrial Economics and Trade: "No Impact on Export Recovery Despite Sharp Rise in Exchange Rates and Ocean Freight"

Cars increase by over 15%... Semiconductor untact demand continues
Growth focused on new industries like 'Biohealth' over main industries
Possibility of target achievement constraints if COVID-19 spread worsens

Jang Ji-sang, President of the Korea Institute for Industrial Economics and Trade, predicted in an interview with Asia Economy that South Korea's exports will show a recovery trend this year. President Jang is posing in his office. (Photo by Korea Institute for Industrial Economics and Trade)

[Asia Economy Reporters Joo Sang-don and Moon Chae-seok] Jang Ji-sang, President of the Korea Institute for Industrial Economics and Trade, forecasted that exports will show an increasing trend this year, supported not only by key products such as semiconductors and automobiles but also by the strong performance of new industries like biohealth. He added that the impact of exchange rate fluctuations and the sharp rise in maritime freight rates on exports will be limited.

President Jang stated, "Despite the COVID-19 situation not significantly improving since the second half of last year, global automobile demand has recovered, leading to an increase in South Korea's car exports since September," and added, "Overall, a significant increase is expected this year." According to the Korea Institute for Industrial Economics and Trade, automobile export value, which increased by 5.3% in 2019, is expected to grow by more than 15% this year. This reflects a strong base effect following a sharp 13.1% decline last year.

The outlook for semiconductors, another key export product, also appears bright. President Jang explained, "Last year, direct semiconductor exports increased, but exports of information and communication device components, including memory semiconductors and storage devices such as solid-state drives (SSDs), rose sharply," adding, "This is because semiconductor demand has significantly increased as the transition to an untact (contactless) society accelerated."

Regarding the impact of exchange rate fluctuations and the sharp rise in maritime freight rates on exports this year, President Jang believes it will be limited. He said, "The influence of exchange rates, or exchange rate elasticity on exports, in key export industries such as semiconductors, petrochemicals, petroleum products, shipbuilding, and displays has significantly decreased compared to the past, suggesting that the impact of the won-dollar exchange rate decline will not be substantial," and added, "Logistics disruptions caused by the surge in maritime freight rates are also expected to gradually resolve over time."

He diagnosed that the export recovery this year will be steeper in new industries than in traditional key industries. President Jang explained, "Overall exports are expected to increase by 11.2% in 2021, but the export growth rate of the 12 major key industries is expected to be 10.6%, slightly lower than the overall rate," and added, "Exports in new industries such as biohealth will increase faster than in key industries." The export share of key industries has been declining annually. In 2019, the 12 major key industries accounted for 77.2% of total exports, but this fell to 74.6% in 2020. This year, it is expected to remain even lower at 74.3%.

However, if the current spread of COVID-19 continues or worsens, achieving the targets may be difficult. President Jang said, "The institute's economic growth forecast for this year is 3.2%, and exports are expected to increase by 11.2%, based on the assumption that risks will be significantly controlled through the development and distribution of COVID-19 vaccines," adding, "If domestic COVID-19 resurgence continues this year, downward revisions of the economic growth rate and export growth forecasts will be inevitable."