Korea Exports Post Biggest Gain Since 1988 as World Reopens

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South Korea’s exports surged the most since 1988 in May as a reopening of overseas economies boosted demand for products manufactured by the Asian nation.

Overseas shipments increased 45.6% from the pandemic-driven plunge a year earlier, the trade ministry said Tuesday, compared with economists’ forecasts for a 48.9% increase. Exports to China rose 22.7% while total semiconductor shipments increased 24.5%.

A separate report from IHS Markit showed the country’s manufacturing sector expanded at a slower pace, with the purchasing managers’ index for May at 53.7, down slightly from the previous month.

While export growth was in part inflated by last year’s 24% drop, the outsized gains reinforce the view that global commerce is recovering from the pandemic and fueling Korea’s economic expansion. Increased vaccinations in major economies like the U.S. have allowed business regulations to be further relaxed and bolstered consumer confidence.

In terms of actual values, exports slowed to $50.7 billion from $51.2 billion in April. The ministry noted there were three fewer working days in May compared with the previous month.

Key Insight

South Korea’s exports are seen as a useful barometer of global demand as the country is home to world-renowned manufacturers for chips, cars and smartphones and the figures are released quickly.Exports are key to achieving the Bank of Korea’s forecast of 4% economic growth this year as they help fuel investment and buoy confidence. Korea’s consumption is also rebounding, which would make the recovery more balanced.“It’s a peak inevitably boosted by last year’s bad numbers,” said Yoon Yeo-sam, an analyst at Meritz Securities in Seoul. “Still, the favorable trade environment adds to the Bank of Korea’s reasoning for policy tightening down the line.”The latest data from China showed the country’s manufacturing recovery may have peaked, with soaring input prices weighing on small factories. The IHS Markit report for Korea also showed supply chain disruptions intensified price pressures for manufacturers.

What Bloomberg Economics Says…

“The headline rate of increase will naturally ease as base effects fade in the coming months. Signs of moderation are also emerging as consumers shift spending from goods to services as vaccinations accelerate and economies reopen.”

— Justin Jimenez, economist

To read the full report, click here.

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Total automobile shipments jumped 93.7% in May from a year earlier, while exports of oil products rose 164.1%.Overall exports to the U.S. rose 62.8%, while those to Japan increased 32.1% and to the European Union were up 62.8%.Overall imports rose 37.9% from a year earlier, leaving a trade surplus of $2.93 billion.

(Adds economist comment, other details.)

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