Investment woes abroad affect Korea’s exports a lot

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Investment woes abroad affect Korea’s exports a lot

A state-run think tank warned that Korea’s exports are overly concentrated in intermediate and capital goods, which are more affected by falls in global investment demand.

The institute said Korea’s export slowdown is likely to continue for a considerable time.

The Korea Development Institute (KDI) released a report Tuesday analyzing the impact of the global investment slowdown on the Korean economy. The report said Korea’s exports exhibited a relatively poorer performance compared to other countries, which negatively affects the nation’s economy.

“The yearly growth rate of Korea’s exports in terms of volume was around 9 percent, higher than the worldwide rate of 5.2 percent in the 2000s,” Jung Kyu-chul, a fellow at the KDI, wrote in a report. “However, it fell rapidly starting in 2014.

“This deepened concerns about negative repercussions on the highly trade-dependent Korean economy.”

In fact, Korea’s exports in April declined 11.2 percent, following an 8.1 percent contraction the previous month.

The KDI said exports to China and Japan fell significantly. In April, exports to China dropped 18.4 percent, and those to Japan fell 25.5 percent.

Korea’s total exports for 2015 fell 8 percent.

“The impact of global investment on Korea accounts for 15.5 percent of GDP, which is 2.4 times higher than the world average of 6.4 percent,” Jung wrote.

“Korea’s exports-to-GDP ratio is 32.3 percent, which is a lot higher than the 18.8 percent world average,” he wrote. “Such results imply that a continuing dullness in global investment could have a worse impact on Korea than other countries.”

According to the KDI, a 1 percentage point drop in global growth pulls down Korea’s growth by 0.8 percentage points on average.

By industry, electrical and electronic devices, machinery, metals and transport equipment are affected significantly by shrinking global investment. If the global growth rate falls 1 percentage point, it is estimated that investment in Korea’s electrical and electronic devices industry will drop 3.57 percentage points, and investment in machinery will fall 3.29 percentage points.

The KDI said it is highly probable that the slump will persist for a considerable time.

“Korea must be more active in seeking new breakthroughs in major export markets such as China, where the demand structure is shifting toward consumption, and policy efforts to restructure distressed companies and heighten flexibility in the labor market should be implemented aggressively,” Jung added.

“In April, exports of most products except for vessels and telecommunications devices dropped compared to the previous year,” the Ministry of Strategy and Finance said in a report released on Tuesday.

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