Korea hits record trade deficit on pricier fuel imports

South Korea hit its biggest monthly trade deficit in more than three decades after costlier fuel imports outweighed export growth in figures that suggest global demand remains largely robust despite a surge in Covid infections and rising inflation fears.

Korea’s trade shortfall swelled to $4.9 billion in January, for the biggest deficit on data back to late 1989 as imports expanded at a faster-than-expected pace of 35.5% from a year earlier. 

Exports rose 15.2%, according to the trade ministry figures released Tuesday, narrowing from an 18.3% gain in December and largely in line with estimates. 

The figures show that while international trade is holding up despite virus concerns, the impact of global inflationary pressure on economies around the world continues to increase even as central banks take action to stem price growth.

According to the release, imports of oil, gas, coal totaled $15.95 billion in January, compared with last January’s figure of $6.89 billion. That increase alone is almost twice the size of the monthly trade deficit. 

The ministry said the larger shortfall largely stemmed from a surge in energy prices and would be temporary.

While the jump in the deficit shows the increasingly painful impact of higher prices around the world, policy makers will likely find reassurance in the continued resilience in exports.

The value of shipments reached a fresh record for a January and the daily average of exports ticked up a fraction to 17.8%, reflecting fewer working days this January. Both figures point to continued strength in overseas demand. 

Korea’s manufacturers are positioned widely across global supply chains and its export data comes out before its peers, providing an early pulse check on global trade strength.

The result largely fits in with the view of the Bank of Korea that the export sector will continue to help the economy recover even amid a surge of virus cases and as it raises interest rates as one of the leaders of the tightening cycle in Asia-Pacific.

Still, the figures showed signs that Korea’s export performance is stabilizing from the stellar gains of the last 12 months.

Exports to China grew at a slower pace of 13%, the smallest gain in more than a year. The overall value of chip shipments also decelerated to 24%, its slowest clip since March. 

Exports in January may also have been boosted by front-loaded shipments before the Lunar New Year holiday this week. 

What Bloomberg Economics Says…

“South Korea’s export growth remained robust at the start of 2022, but momentum is set to moderate further in the months ahead…a rising year-earlier base and a likely rotation from goods to services amid dwindling virus restrictions abroad both point to easing growth.”

—Justin Jimenez, economist