Container unloading work in progress at Incheon New Port in Yeonsu-gu, Incheon. 2023.4.14/News 1Recently, internal and external evaluations such as the government and the International Monetary Fund (IMF) are continuing to say that the main factor behind the slowdown in Korea is the ‘sluggish semiconductor industry’. The government expects the economy to recover in the second half of this year as global demand for semiconductors centered on China returns to normal. However, this prospect is also uncertain due to the observation that the ‘China effect’ as Korea’s largest exporter will not be as good as before.
According to related ministries and agencies on the 17th, macroeconomic institutions at home and abroad are pointing to the manufacturing industry, especially semiconductors, as the main cause of Korea’s economic slowdown.
The Ministry of Strategy and Finance announced in the April issue of ‘Recent Economic Trends’ released on the 14th that the domestic economy of Korea is recovering centered on face-to-face activities after daily recovery.
However, the Ministry of Strategy and Finance diagnosed that the Korean economy is showing a slowdown due to the sluggish manufacturing industry, especially semiconductors. This is because the semiconductor economy, which accounts for a large portion of Korea’s exports, is showing a global slowdown and related indicators are deteriorating.
Exports last month were $55.12 billion, down 13.6% from last year. The daily average export amount considering the number of working days was $2.3 billion, down 17.2% from last year. In February, the current account also posted a deficit of 520 million dollars, continuing the deficit for two consecutive months following January. The current account deficit for two consecutive months is the first in 11 years since January and February 2012.
The Ministry of Strategy and Finance emphasized that the requirements for future economic recovery depend on semiconductors. Lee Seung-han, head of the economic analysis department at the Ministry of Strategy and Finance, said in a briefing that day, “The slump in semiconductors is pulling down the number of the entire mining industry itself, and this is having a very negative impact on Korea’s exports.” It is the most important key element.”
Foreign countries also point to the ‘semiconductor industry’ as the main factor behind the slowdown in Korea’s economy. In its World Economic Outlook (WEO) report released on the 11th, the International Monetary Fund (IMF) predicted Korea’s economic growth rate this year to be 1.5%, down 0.2 percentage points from last January. Because of the cycle,” he said.
However, the government’s economic outlook until the second half of this year is not too bad. As the second half progresses, global semiconductor demand recovers, and the overall economy also rebounds thanks to this, and has maintained a consistent ‘high and low’ outlook since last year.
In particular, expectations are high for China, Korea’s No. 1 export destination. It is expected that the semiconductor export performance and the overall economy will recover one after another in the second half due to the effect of China’s reopening.
However, the key question is how much we can trust the China effect at a time when structural changes in the global trade environment are already underway. Due to the new Cold War between the US and China that began in the late 2010s, the supply chain crisis that followed, and China’s technological pursuit, the share of China in Korea’s export performance is decreasing.
Opinions are emerging that the recent poor export performance reflects not only the sluggish semiconductor industry, but also the changed trade environment. There are also observations that China may give up its status as Korea’s number one export destination to the United States in the near future.
According to the Korea Customs Service’s import and export data, exports to China accounted for about 19.5% of Korea’s total exports between January and March of this year, a significant drop from 24.3% last year. This is because it plunged by $12.54 billion from $42.05 billion last year to $29.51 billion this year. On the other hand, the share of the United States increased from 15% last year to 17.7% this year. In terms of amount, it increased by $910 million from last year.
Kim Jeong-sik, a professor of economics at Yonsei University, said, “Trade between Korea and China will not be as active as before due to the conflict between the US and China.”
Source: Donga
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