Korea’s Exports Close to Stalling as Global Economy Cools

South Korea’s early exports barely rose in August as geopolitical risks and central bank tightening weigh on the world economy.

Daily shipments increased 0.5% on average in the first 20 days of the month compared with a year earlier, the customs office said Monday. While total exports advanced 3.9%, chip sales declined 7.5% and shipments to China dropped 11.2%.

Korea’s exports have been under pressure from Russia’s war on Ukraine, Covid lockdowns and global interest-rate hikes. The recalibration of international activity following the end of the pandemic is also impacting on sales.

“Global factory operations are cooling,” said So Jaeyong, an economist at Shinhan Bank. “The global economy is coming down from its peak and bringing down along with it demand for semiconductors that did particularly well during the pandemic.”

Trade is key to South Korea’s economic growth as the nation relies heavily on exports. Overseas shipments also help underpin further policy tightening by the Bank of Korea as it seeks to shore up the currency and rein in inflation. The BOK meets to decide on rates on Thursday.

Korean exports serve as a key indicator of international economic activity with the nation’s companies embedded widely across global supply chains, including semiconductor and automobile makers.

Korea has been hit hard by elevated energy and commodity prices, driving up import costs and triggering a series of trade shortfalls this year. That’s raised the risk of the nation’s first annual trade deficit since 2008.

The trade deficit for the first 20 days of August amounted to $10.2 billion. That brings the total shortfall so far this year to $25.4 billion, according to the customs office.