South Korea’s Exports Slump Again as Pandemic Drags On

South Korea’s exports posted another double-digit decline in May in a sign of continuing pain from the coronavirus pandemic with the auto sector among the worst hit.

Overseas shipments fell 24% from a year earlier, the trade ministry said Monday, slightly less than economists forecast. Shipments to China held up with just a 2.8% decline, while those to the U.S. and the European Union plummeted.

Car exports dropped more than half, while the value of auto parts shipments slipped by two-thirds. Chip exports, South Korea’s biggest source of trade income, rose 7.1%.

The second double-digit decline of the year underscores the pandemic’s growing toll on South Korean exports, which serve as a barometer of global trade. While major trade partners like the U.S. and Europe have started to lift lockdowns and China is restoring economic activities, the process is hampered by resurgent infections and caution among consumers and businesses.

Key Insights

• Exports underpin South Korea’s economy and their sharp decline has led the central bank to forecast the first economic contraction since the Asian financial crisis. To ease the brunt of the pandemic, the government is preparing its third supplementary budget and the Bank of Korea has cut its interest rates to a record low.
• Monday’s trade report suggests that despite the virus’s wide-spread hit to most industries, the tech sector will likely fare better as people try to minimize public gatherings and turn more to online activities.
• The outlook for South Korea’s exports largely depends on China, its largest trade partner. China returning to normal life is supporting demand for South Korean goods, but any optimism will be temporary unless supported by a broader recovery in the global economy.
• “The jump in chip sales appears to have to do with China ramping up its investments in digital infrastructure,” said Park Sang-hyun, an economist for HI Investment & Securities in Seoul. “South Korea should continue to do better with chip exports as long as it manages to get along with both the U.S. and China while they compete for technology hegemony.”