South Korea’s export slump eases as external demand improves

South Korea’s export slump slowed in July, aided by the economic recovery in China and resilient demand for semiconductors.

Overseas shipments fell 7% from a year earlier, the trade ministry said Saturday, compared with economists forecast of an 8.3% decline. Exports to China rose 2.5% while semiconductor shipments increased 5.6%.

The contraction was smaller than previous months and comes on the back of China’s accelerating recovery and a further reopening of major markets. The data add evidence that South Korea’s trade-dependent economy has passed the worst of the pandemic, but a full recovery hinges on global virus developments.

South Korea releases its trade report earlier than most countries, helping investors gauge the health of the global economy.

Key Insights

• Exports were the largest drag on the South Korean economy in the second quarter, pulling the country into a technical recession. Recovery momentum is building, with industrial production in June beating estimates, while retail sales bounced back to pre-virus levels.
• The government expects exports to fall 8% this year. Still, some South Korean businesses such as memory chip and computer-device manufacturers have benefited from the pandemic-driven practices of working and learning from home.
• The key risk to global trade outlook is a flare-up of the virus, which has forced major economies like Australia and the U.K. to reimpose lockdowns. Even if a vaccine is developed, it would take a considerable time before it is universally available, meaning the global recovery will be gradual and uneven.
• The rekindling of tensions between the U.S. and China is a threat to South Korean exports, because it sells intermediate goods that Chinese firms use to assemble products that are then shipped across the world.