Weak exports on track to hurt growth

By Choi Kyong-ae

Declining exports are on track to hurt the Korean economy as shipments in the third quarter are expected to fall to their lowest level in five years, analysts said Tuesday.

Largely affected by low oil prices, China’s slowdown and the devaluation of the yuan and yen, Korean companies’ exports will continue to decrease throughout the year, they said.

In the July-September period, exports likely failed to reach $130 billion, the lowest quarterly volume since the fourth quarter of 2010 when shipments were $128.7 billion, according to data from economic research centers.

For the whole of this year, exports are set to decrease by about 5 percent compared to 2014. Last year, Korea made shipments worth $572.6 billion, according to data from the Bank of Korea (BOK).

In its revised economic outlook in July, the BOK forecast exports will fall 4.3 percent this year from a year earlier. But the figure is subject to another downward revision next month given the current downward trend.

In the same month, the BOK cut its growth outlook for this year to 2.8 percent from its April forecast of 3.1 percent. BOK Governor Lee Ju-yeol said early this month that the shrinking of exports was the “biggest obstacle to economic recovery.”

Park Hae-sik, a senior analyst at the Korea Institute of Finance, pointed out three major hurdles to the country’s exports.

“China is transforming itself to boost the domestic economy. Despite the yuan’s weakening, exports to China are not increasing. That’s because other currencies are also depreciating. That is one reason,” Park said.

Second, Japanese companies will further benefit from the yen’s weakness as it has more room to cut product prices in global markets. Lastly, a slowdown in the global economy except for the U.S. will weigh on global trade volumes for the time being, he said.

“If Korea’s exports continue to fall and turn into a current account deficit, foreign investors may withdraw their equities and other investments from Korea,” he warned.

In the second half, KDB Daewoo Securities analyst Suh Dae-il said as about 70 percent of Korea’s exports go to China and other emerging markets, any deeper downturn in the markets could deal a heavy blow to Asia’s fourth-largest economy.

In their recent reports, Barclays forecast China’s economic growth will slow down to 6 percent next year from this year’s 6.6 percent. Morgan Stanley said China’s slowdown is affecting trading volumes in emerging markets.

From January to August, the value of Korea’s exports fell 6.3 percent year-on-year to $353.5 billion. Given exports from Sept. 1 to 20 fell 6.4 percent from a year ago to $28 billion, exports for the first nine months won’t exceed $400 billion, analysts said.