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.