The Resurgence of South Korea's Export Boom... Expectations for Structural Growth

July Exports Reach $55.4 Billion...Record High Amount
Export Trends Shifting Away from Semiconductors and China Focus

[Asia Economy Reporter Gong Byung-sun] South Korea's export volume is breaking all-time records. The export items and regions are more balanced than in the past when they were concentrated on semiconductors and China, raising expectations for structural growth.

According to Shinhan Financial Investment on the 15th, South Korea's exports in July reached $55.4 billion (approximately 64.76 trillion KRW), setting a new record high. This broke the previous record of $55.1 billion set in September 2017, marking the first time in 3 years and 10 months. For the entire second quarter of this year, exports increased by 42.1% compared to the same period last year.

By region, contributions came in the order of the Association of Southeast Asian Nations (ASEAN), the United States, China, and the European Union (EU). Although China's share was large in early Q2, exports to the US and ASEAN improved in April and May. Kim Hee-won, a researcher at Shinhan Financial Investment, said, "The expansion of infrastructure investment and the increase in local factory operating rates had a positive effect," adding, "However, there were temporary declines due to the resurgence of COVID-19 in the EU in April and China in June."

From June to July, even previously neglected regions improved. The EU is lifting lockdown measures along with a vaccination rate exceeding half the population. As it moves away from the low oil price trend, increased demand for finished products has led to raw material demand, raising contributions from Latin America and the Middle East as well.

By major item, semiconductors, petrochemicals, automobiles, petroleum products, auto parts, steel products, and general machinery contributed the most. Most items saw their contribution increase through June, peaking and then weakening in July.

However, some items such as IT and biohealth showed different patterns. Their contribution rates slowed due to significant benefits from COVID-19 last year but began to improve around April and May. This was because the semiconductor and computer sectors showed strong demand alongside the non-face-to-face trend. Researcher Kim explained, "The record-high export amount was achieved as price increases and volume growth coexisted," adding, "Price increases had a large impact on intermediate goods excluding IT, while volume improvements in consumer goods led the overall growth."

The export scale is similar to that of 2017-2018, but the details are analyzed to be different. In the past, exports were dependent on semiconductors and China, and the global economy was at its peak, but now the items and regions show a balanced favorable trend. The semiconductor export contribution rates in 2017 and 2018 were 45% and 127%, respectively, but this year it is only 22%. Also, despite the resurgence of COVID-19 in Chinese port areas in May this year, South Korean exports remained solid.

Researcher Kim forecasted, "Due to prolonged supply disruptions longer than expected, the full-scale implementation of demand stimulus policies led by the US, and expansion of private investment, the slowdown in price and volume growth will be gradual," adding, "The export growth rate is expected to exceed market forecasts, showing mid-20% growth in Q3 and 10% growth in Q4."