South Korea’s early trade data showed that exports are continuing to grow at a double-digit clip, boosting the prospects for an acceleration in economic growth this year.
The value of shipments adjusted for working-day differences increased 17.7% from a year earlier in the first 20 days of May, according to data released Tuesday by the customs office. Unadjusted exports rose 1.5%, while overall imports decreased by 9.8%, resulting in a trade shortfall of $304 million.
South Korea posted a 1.3% economic expansion in the first quarter from the previous three-month period, with a robust recovery in exports among factors leading the way. That performance, which soundly exceeded the 0.6% forecast, will likely prompt the Bank of Korea to raise its economic growth forecast for the year from 2.1% when the board convenes later this week.
Strong exports can add to the rationale for the central bank to hold its policy rate elevated for longer. The BOK is widely expected to keep its benchmark rate steady at 3.5%, a level it has described as restrictive, when officials set policy on Thursday.
Semiconductors from South Korea and other Asian economies have especially been in demand as prices pick up on orders from smartphone makers, data-center operators and artificial intelligence developers. For the first 20 days of May, semiconductor shipments jumped 45.5% from a year earlier, the customs data showed. Meanwhile, car sales declined 4.2% and the exports of wireless communications devices dropped 9%.
A strong US economy has also helped offset a slump in demand from China. Exports to the US increased 6.3% and those to China rose 1.3% in the first 20 days of the month, the customs office said. Shipments to the European Union slumped 11.8%.
Citi Research expects the trade surplus to widen to $4.3 billion for the full month of May, compared with $1.5 billion in April, characterizing the preliminary export figures as an indication of continued strong momentum. Meanwhile, Goldman Sachs highlighted a slight pullback in export gains from the previous month in seasonally adjusted terms.
Downside risks persist for South Korea’s growth. Credit concerns persist as developers struggle with debt that piled up during a pandemic-era construction boom. Meanwhile, China, South Korea’s biggest trading partner, has yet to rebound fully from a spending slump as its housing slump continues to weigh on activity.
The exchange rate remains a source of concern as South Korea relies heavily on imports of energy and raw materials to assemble products for export. The won has been one of Asia’s worst-performing currencies this year along with Japan’s yen and Thailand’s baht.
While the elevated dollar-won rate helps swell exporters’ earnings in local currency terms, it also is increasingly becoming a burden for those that rely on overseas manufacturing demand because a large portion of their debt is in foreign currencies, according to Lim Dong-min, an independent economist and columnist.
“It’s both good and bad for exporters, but overall it adds to uncertainties,” Lim said. South Korean firms are part of a wide range of global supply chains, especially in industries including semiconductors, automobiles and batteries.
