October Exports Hit Record High... So Why Is the Market Worried About Exports? [Why&Next]

October Exports Hit Record High but Daily Average Exports Decline for First Time in 13 Months
Overall Stagnation or Weakness Except for Some Items
Rising External Uncertainties Also Forecast Lower Economic Growth Rate

Cargo is stacked on a container ship docked at Busan Port. Photo by Jinhyung Kang aymsdream@

Exports in October reached an all-time high, but concerns are spreading in the market that exports have peaked and are now declining (peak-out). As exports slow down more than expected, there is also a possibility that next year's economic growth rate will be revised downward. If former President Donald Trump wins the U.S. presidential election, which is just one day away, concerns about the slowdown in our exports and economy are expected to increase further.

October Exports Hit Record High but Daily Average Exports Decline

According to the Ministry of Trade, Industry and Energy, South Korea's export volume last month was $57.52 billion, up 4.6% compared to the same period last year. This marks the third consecutive month of record-breaking monthly export volumes since August.

Although the government emphasized that export momentum continues, the market is focusing on the slowdown in export growth. The daily average exports in October were $2.61 billion, down 0.3% year-on-year, marking a contraction for the first time in 13 months. The year-on-year export growth rate, which rose to 13.5% in July, has slowed for three consecutive months to 11% in August, 7.5% in September, and 4.6% in October.

The worse-than-expected daily average exports in October were largely due to a sharp 34.9% drop in export value related to petroleum products caused by falling oil prices. While some items such as semiconductors and home appliances performed well, other items including petrochemicals, steel, secondary batteries, and machinery also faced challenges. Lee Jung-hoon, an economist at Eugene Investment & Securities, said, "Although many predicted a slowdown in export momentum in the fourth quarter, few expected the daily average export growth rate to turn negative starting in October. Semiconductors, computers, and cosmetics are holding up well, but other items are stagnating or declining."

Looking at month-on-month data, the slowdown in export growth is even clearer. Most items showed weakness. Lim Hye-yoon, an economist at Hanwha Investment & Securities, said, "Among the 15 major export items, daily average exports in October decreased month-on-month for 14 items except home appliances, indicating a continued slowdown in momentum. We expect the export growth rate to remain sluggish through the first half of next year."

Economic Growth Rate Decline Inevitable Due to Export Slowdown

The Bank of Korea also expressed concerns about the slowdown in export growth when it released the preliminary GDP growth rate for the third quarter on the 24th of last month. The third-quarter GDP growth rate came in at 0.1%, far below the initial forecast of 0.5%, largely due to net exports (exports minus imports) dragging down the growth rate by 0.8 percentage points. The Bank of Korea explained that the third-quarter economic growth rate fell short of expectations because export growth, centered on secondary batteries and automobiles, slowed more than anticipated. Accordingly, the Bank of Korea is expected to revise down this year's economic growth forecast from the previous 2.4% to between 2.3% and 2.2% in its economic outlook this month.

Experts are more concerned about next year’s economy rather than this year. This is because exports are deteriorating more than expected, domestic demand is unstable, and external uncertainties are expected to increase. The market expects that next year’s economic growth rate could fall below 2%, which is below the potential growth rate. Lee Chang-yong, Governor of the Bank of Korea, recently said at a National Assembly audit, "I am more worried about next year’s economy than this year’s," adding, "If next year’s economic growth rate falls below 2%, it will be below the potential growth rate, which is problematic."

There are also significant concerns that if former President Trump wins the U.S. presidential election this week, our economy could worsen more than expected. The Korea Institute of International Finance predicted that if Trump imposes a universal 10% tariff on all imports, South Korea’s exports would decline, investment would shrink, and the economic growth rate would fall by about 1 percentage point. A representative from the Korea Institute of International Finance explained, "South Korea’s dependence on exports to the U.S. accounted for 6.3% of GDP and 18.3% of total exports last year. If Trump fulfills his campaign promises, a growth shock is inevitable."