Finance Association, May 21 (Editor Liu Rui) South Korea's export data (especially exports of products from semiconductor, automobile, and battery companies) has always occupied an important position in the global supply chain, so South Korea's export data is often viewed as a “canary” reflecting global trade trends and the state of the global economy.

On Tuesday, South Korea Customs released trade data showing that since May this year, South Korea's exports have continued to grow at a double-digit rate, indicating that the global economy is also growing at an accelerated pace this year.

Strong recovery in South Korea's exports

According to data released by Korea Customs on Tuesday, in the first 20 days of May, the total value of South Korea's exports, adjusted for differences in working days, increased 17.7% year on year, and unadjusted exports increased 1.5%; South Korea's overall imports fell 9.8% year on year, with a trade deficit of 304 million US dollars.

South Korea's customs data shows that in the first 20 days of this month, South Korea's exports to the US increased by 6.3% and exports to China increased by 1.3%. However, South Korea's exports to the EU fell by 11.8%.

Meanwhile, with a strong recovery in South Korea's exports, South Korea's economy is also rapidly rebounding. In the first quarter of this year, South Korea's GDP grew by 1.3% compared to the previous quarter, far better than economists' expectations of 0.6%.

As South Korea's economic performance in the first quarter was better than expected, it may prompt the Bank of Korea to raise South Korea's economic growth forecast for this year when it holds a policy committee meeting later this week. The original forecast value was 2.1%.

With South Korea's strong export performance, the Bank of Korea will have more reason to keep policy interest rates unchanged for a long time. Outsiders generally expect that the Bank of Korea will keep the benchmark interest rate unchanged at 3.5% when formulating the policy on Thursday. This interest rate is called the “restrictive interest rate” by the Bank of Korea.

Semiconductor prices have clearly picked up

The increase in South Korea's exports is largely related to the recovery in semiconductors. Semiconductor prices have rebounded markedly in recent months as orders from smartphone makers, data center operators, and artificial intelligence developers have increased.

Demand for semiconductors from other Asian economies is particularly strong. According to Korea Customs data, in the first 20 days of May, South Korea's semiconductor exports increased by 45.5% over the same period last year. However, at the same time, automobile sales fell 4.2% year on year, and exports of wireless communication equipment fell 9%.

Citigroup Research predicts in a recent report: “Strong semiconductor demand should further drive manufacturing performance and gradually resume equipment investment for the rest of the year.”

Exchange rate depreciation is still a cause for concern

However, there are still downside risks to South Korea's economic growth. Credit concerns persist in South Korea as Korean real estate developers have accumulated large amounts of debt during the construction boom during the pandemic.

The exchange rate is also a matter of concern, as South Korea relies heavily on imported energy and raw materials to assemble export products. Since this year, the won, along with the yen and the Thai baht, has become one of the worst performing currencies in Asia, and depreciation of the exchange rate will increase the pressure on South Korea's import costs.

South Korean economist Lim Dong-min said that although the rise in the exchange rate of the US dollar against the Korean won helps expand the income of exporters in local currency, it is also increasingly becoming a burden for companies that rely on overseas manufacturing demand because a large part of their debt is in foreign currency. “This is good and bad for exporters, but overall it increases uncertainty.”