In South Korea, a slowdown in the export dynamic was recorded last month.

The mentioned result recorded over the past month indicates that the latest increase in product shipments from the specified Asian country, which stimulated the economy, is probably gradually starting to move along a downward trajectory. According to the media, against this background, uncertainty is rising, which is associated with the growth of geopolitical risks and the upcoming presidential elections of the United States, scheduled for November 5.

South Korean exports adjusted for working-day differences in October decreased by 0.2% compared to the result recorded for the same period last year. The relevant information was published by the customs office of the Asian country on Friday, November 1. Headline exports in October showed growth of 4.6% year-on-year. It is worth noting that this result does not correspond to the preliminary consensus forecasts, which implied a more intensive pace of upward dynamics of the mentioned indicator. There is also a slowdown in export growth compared to the September pace.

South Korean imports in October showed an increase of 1.7% year-on-year. Currently, the Asian country’s trade surplus stands at $3.2 billion.

The data, which was published on Friday, signals the existence of risk factors for South Korea’s economic growth prospects. In an Asian country, domestic consumption is currently characterized by a lack of stability. From the point of view of the potential for economic growth, the mentioned circumstance is a sensitive factor of negative impact. At the same time, the relevant factor cannot be called catastrophic or extremely critical for Seoul. South Korea relies heavily on external demand in the context of the functioning of its economic system. This year, it is the export operation of the Asian country that drives activity in the space of the domestic economy.

Also, as noted by the media, the data published on Friday on export and import indicators are arguments in favor of the fact that the Bank of Korea should accelerate the process of easing monetary policy. It is worth mentioning that last month the financial regulator of the Asian country began lowering the cost of borrowing. In October, the Bank of Korea cut its benchmark interest rates by 25 basis points to 3.25%. It’s worth noting that this is the first lowering of the cost of borrowing in an Asian country since 2020 when the global economy faced such a shocking situation as the coronavirus pandemic. Analysts interviewed by the media predicted that the Bank of Korea would start cutting interest rates in October.

Kim Dong-soo, a researcher at the Korea Institute for Industrial Economics & Trade, suggests that the export activity of the Asian country may have already reached its peak in the current year, and from that moment on, higher value-added products should become the driving force. For example, in recent months, the external shipments of high-bandwidth memory chips have become a factor in the growth of the value of semiconductor exports. At the same time, prices for more conventional memory microcircuits are currently on a downward trajectory.

To a large extent, the volume of South Korean exports last month was impacted by oil products, the reading of shipments of which fell by 34.9% year-on-year amid declining prices for petroleum. The relevant information is contained in a separate statement, which was published by the Trade Ministry of the Asian country. In this context, it is worth noting that South Korea has one of the largest oil refining clusters in the world. Seoul is also refining its oil holdings for exports to boost economic growth.

Economist Hyosung Kwon said that the data released on Friday understated the weakness of the indicators. According to the expert, without a boost from a calendar distortion, the slowdown in exports would have been even sharper. The economist said that stripping out the mentioned effect, average daily shipments fell year-on-year for the first time since September 2023.

It is worth noting that South Korea, in terms of geographical differentiation, is the world’s largest manufacturer of memory chips. Against this background, the statistical data observed in the Asian country can be interpreted as a kind of barometer of global economic activity. Devices manufactured in South Korea are integral components of various technological products, including smartphones and computers. Data published by the Trade Ministry of the Asian country indicates that in October, semiconductor exports showed an increase of 40.3% year-on-year. In this case, there is an acceleration in the rate of increase in the indicator compared to the previous month, but at the same time it is worth noting that for most of the current year, shipments of the mentioned products rose by more than 50%.

Sheana Yue, an Oxford Economics analyst, said in a note that the ongoing upturn in the technology sector seems to remain the main tailwind and is likely to continue to benefit Asian exports. The expert also underlined that the forecast for moderate global economic growth next year suggests that export shipments are unlikely to be spectacular in 2025.

For South Korea, in the context of external shipments of products manufactured in the country, the main factor of upward dynamic is demand from the United States and China. This year, US customers actively bought the mentioned products. In this case, it means, among other things, high-bandwidth memory chips, which companies such as Nvidia use to assemble artificial intelligence microcircuits.

Last Thursday, October 31, Samsung Electronics Co., the largest South Korean exporter, released semiconductor revenue data that undershot preliminary expectations regarding the dynamic of the corresponding indicator. The company also reported significant progress in efforts to get orders for high-bandwidth memory chips from a major customer. Analysts suggest that this case implies Nvidia, one of the main beneficiaries of the so-called artificial intelligence boom. In the current year, the market capitalization of this company exceeded the $3 trillion mark.

Also, in the context of export activities, smartphones are an important source of income for South Korea. At the same time, a forecast is circulating that next year the market for the mentioned devices will face a downturn in demand. Samsung said in a conference call that in 2025, the global smartphone market will show growth of less than 1%. It is worth noting that the previous expectations regarding the dynamic of the mentioned indicator provided for its increase by more than 2%.

Global commerce, on which South Korea largely depends in terms of earnings, may face certain changes in the foreseeable future. The potential transformation of the situation in the relevant space will be determined by the results of the election of the President of the United States. It is also worth noting that Seoul is vulnerable in the context of the currently observed increase in tensions between Beijing and Washington. The deterioration of the condition of interaction between China and the United States is likely to have negative economic consequences for South Korea. For Seoul, in this case, the problem lies in the fact that a situation of polarization of its largest trading partners concerning each other is actually being formed. Moreover, the United States has already restricted the supply of advanced chips and equipment for the production of appropriate microcircuits to China. At the same time, exports are the platform for the growth of the South Korean economy.

Major South Korean companies, including SK Hynix Inc., Hyundai Motor Co., and Samsung, currently operate factories in both China and the United States. In this context, it is worth mentioning that Samsung has won billions of dollars in subsidies from the US for the construction of a production site in Texas.

According to data released on Friday, South Korean exports to the United States increased by 3% in October compared with the result for the same period in 2023. At the same time, product shipments to China grew by 11% year-on-year last month.

It is worth noting that this year in China, the conditions were less favorable. Currently, the economic system of this country is on a slowdown trajectory. The corresponding downward tendency is largely due to factors such as the large-scale downturn in the Chinese real estate market and weak domestic consumer activity. In recent months, Beijing has taken measures to stimulate the economy. If the relevant solutions within the framework of implementation in the practical plane prove to be effective, South Korea will become one of the beneficiaries of the corresponding result.

Military conflicts in different regions of the world worry Seoul to one degree or another. For world trade in particular and the global economy as a whole, the negative situation in the security area is definitely a negative factor. Moreover, armed conflicts are a kind of source of destruction of stability.

In the last quarter, South Korean exports in real terms declined. Against this background, local policymakers decided to revise the forecast for economic growth downward. Governor of the Bank of Korea Rhee Chang-yong said this week that in the current year, the rising gross domestic product (GDP) may slow down to 2.2%.

The next forecast of the South Korean financial regulator on the prospects for economic growth will be published at the end of the present month after the policy meeting.

Rhee Chang-yong also said that forecasting the perspectives for the dynamic of the Asian country’s GDP next year has become more difficult amid a decline in exports in real terms last quarter.

The spread of the opinion that Donald Trump could become the winner of the presidential election in the United States strengthened the dollar and at the same time became a factor in the weakening of the Won, the national currency of South Korea. Rhee Chang-yong stated that policymakers are wary of the currency fluctuations, and signaled that authorities may intervene in foreign exchange markets if a situation arises containing an appropriate need.

South Korean President Yoon Suk Yeol also drew attention to Won’s course during a cabinet meeting this week. In the context of the relevant issue, he noted the importance of prompt response to prevent changes in foreign exchange rates, supply chains, or oil prices from having a negative impact on the economy. It is worth noting that from an economic point of view, Seoul is interested in global stability and a favorable geopolitical situation.

As we have reported earlier, SK Hynix to Build Chip Plant in South Korea.