Concerns Over Slowdown in South Korea's Export Growth Rate... Impact of Global Economic Contraction

Gukgeum Center Report
Impact of Economic Slowdown Signals in Major Export Countries US and China
"Korea's Exports Greatly Affected by Changes in External Conditions"

As South Korea's exports continue to show steady growth, there are assessments that the increase in exports of semiconductors, petroleum products, and other goods may slow down due to a potential global manufacturing downturn in the future.

According to the International Finance Center's report titled 'Concerns Raised Over Slowdown in South Korea's Export Growth Rate' on the 14th, South Korea's exports in August increased by 11.4% compared to the same month last year, marking 11 consecutive months of positive growth since October last year (4.9%).

The positive turnaround in South Korea's export growth rate since October last year is attributed to the base effect caused by manufacturing sluggishness since the end of 2022. Exports in December last year reached $57.57 billion, the highest in 17 months since July 2022 ($60.24 billion). However, this base effect is expected to weaken as the year-end approaches. With monthly exports averaging around $56 billion this year, even if monthly exports reach $60 billion for the remaining period, the export growth rate is expected to slow to single digits.

The possibility of demand weakening from major export destinations such as the United States and China has also increased. This is due to signs of economic cooling in advanced countries including the U.S., alongside China's economic slowdown. Major investment banks (IBs) have lowered their forecasts for China's overall economic growth this year, citing an inevitable slowdown due to the real estate market slump and weak domestic demand.

In the U.S., the Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI) was 47.2 in August, marking five consecutive months of contraction, and nonfarm payrolls (3-month moving average) slowed for five consecutive months to 116,000 in the same month. As a result, IBs expect the U.S. growth rate to gradually decelerate this year.

Notably, the global manufacturing PMI, which shows a high correlation with South Korea's export growth rate, fell below the benchmark of 50 for two consecutive months in July (49.7) and August (49.5). This suggests that South Korea's export growth may slow down due to a potential global manufacturing downturn.

Additionally, with the recent weakening of semiconductor price increases and a decline in international oil prices, the export growth of South Korea's major export items such as semiconductors and petroleum products is expected to weaken. Semiconductors and petroleum products account for 20% and 7.9%, respectively, of this year's total export performance.

Kim Woo-jin, lead researcher at the International Finance Center who authored the report, stated, "Considering the significant impact of major countries' economic conditions on South Korea's exports, it is necessary to pay attention to related situations along with geopolitical risk changes such as U.S.-China trade conflicts and Middle East issues." He added, "In particular, structurally, South Korea's exports have a high dependence on specific countries and items, making them highly susceptible to changes in external conditions."