Korea exports dip for 2nd month, growth slows to 1-year low

South Korea’s exports reported a decline for a second straight month in November on sluggish semiconductor sales, darkening the outlook for Asia’s fourth-largest economy that grew at the slowest pace in one year during the third quarter.

Exports fell 14% to $51.9 billion last month from a year earlier while imports rose 2.7% to $58.9 billion, showed preliminary data from the Ministry of Trade, Industry and Energy on Thursday. The country’s overseas sales in October slid 5.7%, the first year-on-year decline since the 3.9% drop in the same month of 2020.

South Korea suffered a $7 billion trade deficit in November, extending its deficit to an eighth consecutive month, the longest shortfall streak since the period from January 1995 to May 1997.

The country is on the course of a record annual trade deficit in 2022 as the shortfall in the first 11 months amounted to $42.6 billion, exceeding the previous high of $20.6 billion reported in 1996.

The export outlook remained bearish with a business lobby group forecasting a 4% decline in 2023, which would be the first annual fall since 2020 when its overseas sales dipped 5.5% due to the COVID-19 outbreak.

“Global IT demand is expected to keep slowing down next year. That will hurt the semiconductor sector, which has the biggest impact on the overall exports,” said the Korea International Trade Association. The group predicted chip exports to slide 15% in 2023.

South Korea is home to the world’s two largest memory chipmakers – Samsung Electronics Co. and SK Hynix Inc.

In November 2022, semiconductor exports skidded 29.8% with overseas sales of memory chips almost halving on sluggish global demand for the country’s key DRAM and NAND chips.

The economy expanded by a seasonally adjusted 0.3% in the third quarter from the previous three months, revised central bank data showed earlier in the day, unchanged from the advance estimate released in October. The growth was the lowest since the July-September 2021 period.

BOK TO SLOW DOWN RATE HIKE PACE

Such dismal economic conditions are likely to slow down the central bank’s tightening pace, analysts said.

“The recently released data signals a sharp deterioration in the economy in the current and subsequent quarters,” said Min Joo Kang, a senior economist at ING in a note. “ We, therefore, expect the BOK to deliver its last hike this cycle in February.”

Last week, the Bank of Korea raised its policy interest rate by 25 basis points to 3.25%, slowing the pace of its tightening after a 50-bp increase in October.

US Federal Reserve Chairman Jerome Powell also said on Wednesday that smaller rate hikes are likely ahead although he sees progress in the inflation fight as largely inadequate, which may allow the BOK to refrain from taking another 50-bp hike.

“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” Powell said. “The time for moderating the pace of rate increases may come as soon as the December meeting.”

The remarks helped the South Korean won appreciate as much as 1.9% to 1,294.6 per dollar, the strongest level since July 5, in the local foreign exchange market.

That could alleviate the BOK’s concerns over inflation as a strong won often eases inflationary pressure by lowering import prices, analysts said.

Write to Ji-Hoon Lee, So-Hyeon Kim and Mi-Hyun Jo at lizi@hankyung.com
Jongwoo Cheon edited this article.