Why does South Korea’s GDP fall out of the top ten global trade canaries？
According to the gross domestic product (GDP), Korea, known as the "canary" of global trade, is no longer the top ten economies in the world.
According to the data released by the Bank of Korea (BOK) recently, the nominal GDP of South Korea in 2022 was about 1.67 trillion US dollars, ranking first in the United States, with a nominal GDP of about 25.46 trillion US dollars. China ranks second, with $17.88 trillion; The third place is Japan, about 4.23 trillion US dollars.
According to this data, South Korea’s nominal GDP fell out of the top ten in the world last year, ranking thirteenth, not as good as Italy ($2.01 trillion), Brazil ($1.87 trillion) and Australia ($1.70 trillion).
In this regard, the Korean media exclaimed: South Korea is no longer the top ten economic powers in the world.
"The decline in the ranking of (South Korea) is due to the weak won and poor export performance. This is inhibiting economic development. " Sung Tae-Yoon, a professor of economics at Yonsei University, said, "Now we must pay attention to industries other than semiconductors and industries that can find the impetus to revive the long-term economic growth."
Blame the strength of the dollar?
Nominal GDP is the total value of all goods and services produced in a specific period, which can be used to measure the economic scale of a country. According to this statistical caliber, South Korea ranked among the top ten in the world for the first time in 2005, but it fell out of the "Top Ten Club" several times before 2019, and returned to the tenth place in 2020 and 2021.
If calculated in won, the nominal GDP of South Korea in 2022 was 2,161 trillion won, a year-on-year increase of 3.9%. However, due to the depreciation of the won, it decreased by 7.9% in dollar terms. An official of the Bank of Korea said: "Due to the strength of the US dollar last year, most exchange rate conversion indicators (in South Korea) showed poor performance."
Under the strong dollar, the preliminary statistics released by the Bank of Korea in March showed that the exchange rate of the Korean won against the US dollar dropped by 12.9% annually last year. Therefore, in addition to nominal GDP, South Korea’s per capita gross national income (GNI) fell to $32,600 last year, a year-on-year decrease of 7.7%.
In fact, South Korea, an export-oriented economy, also suffered an unprecedented trade deficit last year. The report "Import and Export Trends in December 2022 and the whole year" released by the Ministry of Industry, Trade and Resources of Korea at the beginning of this year shows that the trade deficit of Korea in 2022 was US$ 47.2 billion, a record high. Specific statistics show that in 2022, South Korea’s exports amounted to US$ 683.9 billion, a year-on-year increase of 6.1%; Imports amounted to US$ 731.2 billion, up 18.9% year-on-year. The trade deficit of $47.2 billion is the first time that South Korea has experienced a trade deficit after 14 years since the global financial crisis in 2008, and its scale is twice that of 1996 ($20.62 billion) before the financial crisis, setting a new record.
Since last year, the shrinking global demand, coupled with the sluggish storage semiconductor industry, has seriously dragged down the performance of South Korea’s exports. Since October, 2022, South Korea’s foreign exports have been negative year-on-year for nine consecutive months, and exports continued to decline year-on-year in the first 10 days of July (-14.8%). In terms of the breakdown of South Korea’s trade export structure, semiconductors account for about 20%. Since August 2022, the export volume of South Korea’s semiconductor industry has declined for 11 consecutive months year-on-year, with the decline exceeding 40% for many times.
As Korea’s largest export market, the trade structure between China and South Korea has also undergone tremendous changes. According to Korean media reports, the long-standing trade surplus between South Korea and China has turned. In 2022, South Korea’s exports to China reached US$ 155.81 billion, a decrease of 4.4% compared with US$ 162.91 billion in the previous year. Since October 2022, South Korea’s trade with China has experienced a rare continuous deficit, and its scale has continued to expand.
Huang Fei, a professor in charge of the Seoul Graduate School of Science, told the First Financial Reporter: "The commodities traded between China and South Korea are mainly light industrial and heavy chemical commodities such as steel plates and fibers, and have changed into high value-added intermediate materials led by semiconductors. This means that the cutting-edge manufacturing industry in China has intensified the export competition between the two countries in the middle and high-tech industries. "
In Huang Fei’s view, China enterprises can be found in the fields of LCD panels, smart phones, electric vehicles and new energy batteries, which used to have comparative competitive advantages in Korea.
New changes in trade structure
Since the global epidemic broke out this year, can the Korean economy get out of the shadows? The Bank of Korea gave a less optimistic expectation. The Bank of Korea said that it is expected that the actual economic growth rate of South Korea may hover around 1.5% this year. "It is unlikely that the total economic scale will return to the top ten."
The Update Report on Economic Outlook released by the Bank of Korea on May 25th thinks that the domestic economic growth in Korea continues to be weak, and the economic growth forecast of Korea in 2023 is lowered from the original 1.6% to 1.4%, which is lower than the growth forecast of 1.5% recently put forward by the International Monetary Fund (IMF), Asian Development Bank (ADB) and Korea Development Research Institute (KDI).
As far as South Korea’s most dependent semiconductor exports are concerned, the situation in the first half of this year has not improved. According to the latest data from Korean Customs, in the first 10 days of July 2023, Korean semiconductor exports fell by 36.8% year-on-year. However, it is worth noting that while South Korea’s semiconductor exports are declining, South Korea’s automobile exports are catching up. According to the statistics of South Korea, South Korea’s automobile trade balance has jumped to the top in terms of monthly and quarterly since the fourth quarter of last year, far ahead of semiconductors. In the first 10 days of July, the export growth rate of Korean passenger cars has reached 25%.
According to Kim Yun-lin, a Korean scholar, it is only a matter of time before automobile exports replace semiconductors to return to the top of Korean exports. Relevant persons of the Korea Trade Association predict that, considering the sharp decrease of semiconductor exports and the trend that automobile exports continue to be firm, the positions of the two export products are about to change: automobiles are expected to return to the top of the export list after 12 years, replacing semiconductors as the strongest pillar of Korean exports.
At the same time, South Korea’s trade with China continued in the first half of this year. Among them, the increase in imports of products that are highly dependent on China’s imports, such as batteries, industrial raw materials for storage batteries and computers and electrical appliances, is the main source of the deficit. In the first 10 days of July, South Korea’s exports to China still showed a year-on-year decline trend, with a reduction rate of 20.6%, which has been reduced for 13 consecutive months. At the same time, South Korea’s exports to the United States (-9%), Vietnam (-32.5%), Japan (-20.8%) and other places have also decreased, while exports to the European Union (22.4%) and India (11.1%) have increased.
However, Jin Yunlin told the First Financial Reporter that South Korea’s trade deficit has gradually narrowed this year, and it remains to be seen whether the Korean economy will recover in a V-shape or an L-shape. Relevant persons from the Ministry of Industry, Trade and Resources of Korea are more optimistic, and it is expected that Korean semiconductor exports will partially recover from the second half of the year. However, Jin Yunlin believes that as the semiconductor industry is dragged down by various external factors, it is still difficult to predict the recovery time of the industry and the pulling effect on South Korea’s exports.