Trade deficit casts cloud over markets, growth – News

Trade deficit casts cloud over markets, growth – News
Trade deficit casts cloud over markets, growth – News

A view of the container terminal at Busan Harbor on Wednesday (Yonhap).

SEJONG – South Korea may record a trade deficit for a sixth straight month, as the country endured a trade deficit of $4.1 billion for the first 20 days of September, down 8.7 percent from a year earlier, state data showed on Wednesday.

According to the Ministry of Commerce, Industry and Energy, the country posted $32.9 billion in exports and imports rose 6.1 percent to $37 billion over the same period.

It will be the first time in 25 years that Asia’s fourth-largest economy will suffer a sixth consecutive month of trade deficit, officials said.

In the first 20 days of this month, outbound shipments to China fell 14 percent year-on-year. Exports to the United States fell 1.1 percent, and to the European Union fell 15.3 percent.

A widening trade deficit could have a major impact not only on the economy but also on markets, economists have warned. This is likely to dampen foreign investor sentiment, as foreign investors may see the export-driven economy as losing its luster, economists said.

The ongoing trade deficit could lead to capital outflows among foreign investors, the Korea Economic Research Institute said in a report.

Citing the relationship between the trade balance and the won-dollar exchange rate over the past three years, the institute said the Korean currency loses ground to the US dollar when the balance worsens.

Korea posted a trade surplus of $1.5 billion in August 2021 and a deficit of $9.4 billion in August 2022, with the local currency depreciating to 159.3 won to 1,320.4 won from 1,161 won to the dollar over the same period.

The institute said the drop in the value of the won would raise concerns among foreign investors in capital markets about losses from the exchange rate.

Based on its analysis of data held by Statistics Korea between January 2004 and July 2022, the probability of net-selling among foreign investors increased by 28.3 percent under a trade deficit scenario compared to a trade surplus, it said.

Local brokerage firm Korea Investment & Securities also predicted that the country’s gross domestic income would decline by about 1 percentage point in 2022 amid a worsening trade balance.

Even if import prices stop rising as raw material prices stabilise, export prices could fall sharply due to expected decline in semiconductor prices, it said.

It said this would lead to a continued decline in GDI, which is influenced by the manufacturing activities of businesses. “GDI will decline by about 1 percentage point this year compared to last year,” KIS said.

by Kim Yeon-se ([email protected])

The article is in Bengali

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