Exports in May hit an all-time high on strong semiconductor sales, but shipment volumes in traditional manufacturing such as autos are in the red. What's different from the past is that this is happening amid a high exchange-rate phase. The effect in which a weaker won makes exports cheaper and boosts volumes has disappeared. Analysts say Korea's economy is facing a new situation in which the currency effect has faded while the semiconductor mirage is deepening.
◇ Shipments fell for 7 of the top 20 export items
According to the Bank of Korea on the 19th, the export volume index, which represents overall shipments, rose 14.7% from a year earlier. But shipments fell for 65 of the 122 products the Bank of Korea tracks, more than half. Among the top 20 export items identified by the Ministry of Trade, Industry and Resources, seven declined.
In particular, passenger car shipments, a flagship for Korea, fell 2.2%. Auto parts (-2.4%) and engines for automobiles (-36.3%) also weakened. The hardest hit was the home appliance institutional sector. Household refrigerators and freezers dropped 46.9%, and kitchen heating appliances fell 29.8%. The Middle East war weighed on petroleum and chemicals, a pillar of manufacturing. Basic chemicals shrank 16.1%, synthetic resins and synthetic rubber 7.9%, and chemical fiber 21.5%.
Export indicators look strong thanks to IT products such as semiconductors (3.5%), computers and peripherals (80.9%), and displays (7.8%). When calculating the export volume index, the Bank of Korea gives the highest weight (29%) to semiconductors, computers, and electronic and optical equipment.
◇ "Even with a higher exchange rate, the positive effect on exports is limited"
The problem is that this drop in shipment volumes is occurring during a period of a high exchange rate. Typically, when the won-dollar rate rises, exports become relatively cheaper and volumes increase, but the opposite is happening. The average won-dollar rate from Mar. to May was 1,480 to 1,490 won, up 150 won from the recent five-year average of 1,334 won.
The biggest reason the exchange-rate effect has faded is that corporations increasingly settle in dollar assets when exporting products. In this situation, a higher won-dollar rate raises import prices, but export prices do not change. Importing countries actually feel Korean goods are more expensive. A higher won-dollar rate no longer has a major impact on exports.
According to the Korea Development Institute (KDI) study on the impact of exchange-rate fluctuations on trade and the balance of trade, even when the won weakens, dollar-denominated prices adjust gradually over a year, limiting the impact on shipment volumes. When the won depreciates 1%, export prices fall 0.65%, but shipment volumes increase only slightly.
There is also analysis that the competitiveness of Korean-made products has deteriorated. Compared with cheap Chinese goods, price competitiveness has weakened. Even domestically, inexpensive Chinese products are popular. A Bank of Korea official said, "People are using many Chinese-made products such as robot vacuums right now," and noted that "imports from China are increasing."