South Korea’s economy inched toward its first recession in three years as data on Wednesday showed its January trade deficit soared to a record.
Asia’s fourth-largest economy, which relies heavily on trade for growth, shrank by 0.4% in the October-December quarter. It is now on the brink of falling into what would be its first recession since the middle of 2020 during the height of the Covid-19 pandemic.
Exports plunged 16.6% in January from a year earlier, thanks to a combination of long holidays and cooling global demand. That was the fastest drop in exports since May 2020.
“I have a zero percent forecast for the first-quarter growth but today’s trade figures are definitely a minus to that,” Park Sang-hyun, an economist at HI Investment and Securities, said.
Leading the sluggish trade performance in January were a 44.5% dive in semiconductor exports and a whopping 31% plunge in sales to China, the trade ministry data showed.
Both were the worst rates of decline since the 2008/2009 global financial crisis.
Meanwhile, imports fell 2.6% compared with a year earlier. As a result, the country posted a monthly trade deficit of $12.69 billion, setting a record amount for any month.
The increasing chances of recession – two consecutive quarters of decline in gross domestic product – also underscore growing bets in markets that the central bank’s campaign of raising interest rates since late 2021 has run its course.
South Korea’s Finance Minister Choo Kyung-ho blamed long Lunar New Year holidays in China and a steep fall in computer chip prices versus a year ago for the sharp declines in export values. China’s reopening would help ease the situation over time, he added.
“The government will mobilise all available policy resources to help support a drive to boost exports so that the timing of improvement in trade balance can be advanced,” Choo said at a meeting of trade-related officials, without elaborating.
The government has forecast this year’s exports would fall 4.5% after posting a 6.1% gain in 2022, and the trade ministry has said it would do what it can to avert a decline.
- Reuters, with additional editing by Vishakha Saxena