Korea suffers largest-ever trade deficit in August

By Yi Whan-woo

Korea recorded its biggest monthly trade deficit in August amid the prolonged slowdown in export growth, raising concerns that the country's economy will lose further growth momentum in the remainder of 2022.

Exports have been the main driver for the Korean economy, and their slowdown is mainly attributable to the sluggish Chinese economy, which may mark its slowest growth in more than three decades in 2022. China is Korea's largest trading partner.

Such export news suggests that the effects of the slowdown may ripple across broader measurements of the economy, such as the current account balance, and eventually affect the growth outlook that has been repeatedly revised down, according to experts.

According to the data released by the Ministry of Trade, Industry and Energy, Thursday, the trade deficit amounted to $9.47 billion last month, the largest amount since the ministry began compiling data in 1956.

It was also the first time since the 2008-2009 global financial crisis that the country's trade balance marked a losing streak for the fifth consecutive month.

The trade deficit amounted to $2.48 billion in April, $1.6 billion in May, $2.59 billion in June and $4.81 billion in July.

The August reading comes as the pace of growth for outbound shipments slowed down and export value lagged behind that of imports.

Exports increased for the 22nd consecutive month and totaled $56.67 billion ― the highest tally for any month of August since related data has been compiled.

The total value of exports per month, however, posted rare single-digit year-on-year of growth of 5.3 percent in June, 9.2 percent in July and 6.5 percent in August, following a 15-month-long double-digit increase.

By nation, outbound shipments to China marked a 5.4-percent year-on-year fall to $13.13 billion amid Beijing's extended COVID-19 lockdowns.

This decrease was large enough to offset increases in exports to the United States, European Union and ASEAN countries, according to the ministry.

Of the key export items, semiconductors saw sales fall for the first time in 26 months, posting a 7.8-percent year-on-year decline.

“Against this backdrop, our economy may possibly retreat in the third or the fourth quarter under the condition that private spending staggers as well,” said Joo Won, director of the Hyundai Research Institute.

He was referring to the increase in private spending that made up losses from the export slowdown in the second quarter, when gross domestic product grew by 0.7 percent.

Also released on Thursday, a Bank of Korea (BOK) report on the causes of the trade deficit showed that such a deficit could last long.

It noted that Korea is increasingly competing with China in chips, displays and key export items, making it tough to cope with increase in import prices of crude oil and raw materials.

It went on to say the current account balance, although likely to remain black for the time being, could be influenced by risks from home and abroad in the longer term.