[Editorial] An economy thrust into a deeper crisis

Exports are cooling faster than expected. They fell against a year-ago period for the fourth month in a row, generating a record monthly deficit of $12.7 billion in January trade balance. Nearly 30 percent of last year’s annual deficit of $47.5 billion was logged in just a month. The red streak has stretched into the 11th month, the longest in 25 years since the episode from January 1995 to March 1997 ahead of the country’s foreign exchange and liquidity crisis.

The slowdown in the global economy from high prices and interest rates, the slump in chip demand that takes up one fifth of Korea’s exports, and the plunge in our shipments to China all led to the dismal export performance. Chip exports tumbled 44.5 percent from a year-ago due to the fall in mainstay memory prices. Chipmakers were devastated. Income from chip operation of Samsung Electronics sank a whopping 97 percent while the second largest memory maker SK hynix even logged a loss in the fourth quarter.

The China risk has hit Korea hard. With chip shipments being halved, exports to its largest market fell 31.4 percent. Exports have been shriveling for eight straight months, and the country has been incurring a deficit with China for the fourth month.

The government is pinning hope on the reopening of China. But this is no time for optimism. According to the Korea Center for International Finance (KCIF), exports to China have been sluggish not just because of the depressed demand in China from lockdowns, but also from its rapid localization for industrial products. Under the “Made in China 2025” initiative, China is replacing Korean intermediary imports fast with its domestic products. The KCIF advises Korea’s services sector like financial institutions to advance to China to compensate for losses in manufacturing. The center also recommended Korean enterprises look more aggressively towards the Asean market with greater growth potential.

Energy imports are the primary culprit to the overstretched trade deficit. Imports of oil, gas and coal for fueling totaled $15.79 billion, accounting for 27 percent of total imports. Relief should go to the underprivileged class who cannot afford the jump in heating cost.

But energy populism should not reach the upper income class. If most of the population are subsidized for the fuel cost, a government policy to rationalize gas and electricity charges to reflect the international price surge and the campaign to save energy would become meaningless. It does not help countering trade deficit, either. During her recent visit to Seoul, the IMF’s First Deputy Managing Director Gita Gopinath also advised a “temporary” energy relief to the targeted group so that benefits could help the most needed.