Recorded $3.77 billion last month
First six consecutive months of loss since 1997
Imports ‘snowball’ due to soaring energy prices
Annual trade deficit forecast of $48 billion
With a trade deficit of over $3.7 billion last month, the International Monetary Fund (IMF) recorded a trade deficit for six consecutive months for the first time since the 1997 Asian financial crisis. At this rate, this year’s trade deficit is expected to more than double that of just before the financial crisis, which was the largest in history.
The Ministry of Trade, Industry and Energy announced on the 2nd that the trade deficit recorded $3.77 billion last month. While exports stagnated, imports increased sharply, resulting in a trade deficit. Exports last month were $57.46 billion, up only 2.8% from the same period last year. This is the lowest increase in about two years since October 2020 (3.9%). It is also a bad sign that the export growth rate remains in the single digits for four consecutive months since June this year (5.3%).
Of the 15 major items, only five items, including petroleum products, automobiles, and rechargeable batteries, saw an increase in exports. In particular, exports of semiconductors, the largest item, fell 5.7% from the previous year. Exports to China, the largest market, also fell 6.5 percent, continuing the decline for the fourth straight month. Exports also fell 0.7% to the European Union (EU), where concerns about an economic slowdown are spreading due to the prolonged war between Russia and Ukraine. On the other hand, imports last month increased 18.6% year-on-year to $61.23 billion. Imports of crude oil, gas and coal, the three major energy sources ($17.96 billion), were largely affected by a $8.05 billion increase from the same period last year. In particular, imports of crude oil, gas and coal from January to September increased by $67 billion compared to the previous year, significantly exceeding the trade deficit of $28.88 billion.
The deterioration of the trade balance is a common phenomenon in major countries that are highly dependent on energy imports. Japan has been running a trade deficit for the 13th month in a row. France and Italy also have deficits in their trade balances.
In the past, Korea has recorded large trade deficits every time there is an economic crisis. Even right before the financial crisis, it posted a deficit for six consecutive months and recorded an annual loss of $13.3 billion in 2008, around the time of the global financial crisis.
The problem is that exports are gradually slowing down. Even at the beginning of this year, the export growth rate was 15.5%, but fell to 2.8% in August. It seems to be moving away from the government’s explanation that the trade balance can also turn into a surplus if energy prices are stabilized.
Most institutions, including the Bank of Korea, expect the trade deficit to continue for some time. The crisis could be further amplified if Russia’s weaponization of resources, such as a gas supply cutoff this winter, becomes a reality.
On the same day, the Korea Economic Research Institute, affiliated with the Federation of Korean Industries, predicted that the trade deficit would reach $48 billion this year. This is more than double the $20.6 billion in 1996, just before the Asian financial crisis, which was the largest trade deficit in history.