Driven by the rebound in semiconductor demand, South Korean exports accelerated recovery in November, boosting optimism about the country’s economic prospects and global trade next year.
The latest data released by the Ministry of Trade, Industry and Energy of South Korea showed that exports in November increased by 7.8% year-on-year to reach $55.8 billion, achieving growth for the second consecutive month.
Among them, chip exports in November increased by 12.9% year-on-year to $9.5 billion, marking the first growth in 16 months. Exports are a major engine of South Korea’s economic growth, and prior to October’s rebound after 13 consecutive months of decline.
It is worth noting that South Korea’s trade data serves as a key barometer for global trade activities and provides preliminary insights into global demand conditions. This is because various products exported by South Korea include machinery, displays, and finished oil products that are distributed throughout the global supply chain. The country’s economic outlook for 2024 also depends on the strength of export growth. The Bank of Korea lowered its forecast for South Korean economic growth in 2024 to 2.1% on Thursday.
Challenges facing South Korea’s export prospects include continued restrictive monetary policies implemented by central banks worldwide to combat inflation as well as tensions between Israel and Palestine which could push up oil prices and inflation thereby undermining consumer confidence.
In its latest outlook report, the OECD stated that “global economic growth has been stronger than expected while geopolitical tensions have eased,” which will improve the economic prospects of export-dependent South Korea.
The OECD predicts that South Korea’s economy will grow by 2.3% next year, higher than what was projected by the Bank of Korea. Over nearly a year now, the Bank has maintained its key interest rate unchanged while seeking to curb inflation without compromising momentum for economic growth.
The rebound in chip prices has boosted South Korean exports while automotive, machinery, and wireless communication products have driven growth in demand for other products. A report by the International Data Corporation (IDC) shows that after contracting by 3.5% this year, global smartphone shipments may increase by 3.8% next year.
However, investors still have reasons to remain cautious. Economists predict that global economic growth will slow down next year, which will weaken demand for export products from countries like South Korea. A forecast by Bank of America indicates that as the benefits brought about by fiscal investment plans gradually disappear, consumption in the United States may slow down.
The latest Beige Book released by the Federal Reserve suggests that a decline in discretionary spending may already be underway.
“In the coming quarters, further slowdown in global demand could suppress exports,” said an economist at BMI under Fitch Solutions. “However, apart from this factor, we believe that relaxed monetary policies will pave the way for a rebound in global trade and benefit South Korea’s export-oriented economy as a whole.”