Korea: Export contraction worsens in May
Merchandise exports fell 9.4% over the same month a year earlier in May to total USD 45.9 billion, worsening from the 2.0% contraction in April. Merchandise imports, meanwhile, dropped 1.9% in May, contrasting the 2.6% expansion in April and totaling USD 43.6 billion. External demand for South Korean goods has been particularly dragged on by a slowing Chinese economy, weaker global trade amid the persistent U.S.-China trade rift, and weakness in the automobile and semiconductor industries.
The merchandise trade surplus narrowed in April to USD 2.3 billion in May from the USD 6.4 billion surplus in the same month year prior (April: USD 4.0 billion surplus). The 12-month moving sum of the trade balance also narrowed to a USD 60.1 billion surplus in May from the USD 64.1 billion surplus in April.
Turning to the export outlook and what it means for GDP prospects, analysts at Nomura commented:
“We believe the escalation of the U.S.-China trade dispute will likely weigh on export growth further, as our global economics team assigns a relatively high probability (65%) to the US implementing the next round of tariffs (25% on around USD300bn). We estimate the additional tariffs – and increase to 25% from 10% on USD200bn of Chinese exports to the US – will trim Korea’s GDP growth by ~0.1pp in the short term. If additional tariffs of 25% are imposed on the remaining USD300bn of Chinese exports to the U.S., this could shave an additional ~0.3pp from GDP growth. Therefore, we estimate the cumulative impact of US tariffs on Korea’s 2019 GDP at ~0.4pp.”