S. Korea’s economy nears first recession in 3 years

South Korea’s economy has taken a hit as the nation inches closer to a potential recession, first in almost three years. A new report released on Wednesday (Feb 1) shows that a record-high trade deficit, largely driven by falling exports, is the main cause of the country’s economic slowdown.

As the fourth-largest economy in Asia, South Korea is heavily dependent on trade for growth. However, with exports plummeting by 16.6 per cent in January compared to the same month last year, the nation reported a record-breaking $12.69 billion trade imbalance for the month. This marks the exports’ steepest dip since May 2020 and exceeds the 11.3 per cent reduction forecast in a recent poll.

The sharp decline in exports, coupled with two consecutive quarters of declining GDP, has raised the possibility of a recession in the country. The weak trade performance in January is attributed to a 44.5 per cent reduction in semiconductor exports and a 31.4 per cent decline in sales to China, according to the commerce ministry.

In the meantime, the central bank’s push to raise interest rates since late 2021 is also causing concern in the market. The government predicted that exports would drop by 4.5 per cent this year after recording a 6.1 per cent growth in 2022. The commerce ministry has pledged to take preventive measures to prevent further loss.

The fragility of the region’s economic recovery is also reflected in the recent decline in Asia’s factory activity in January. Despite China’s COVID reopening, the activity decreased due to the slowing development in the US and Europe, as highlighted by recent polls. However, the private sector poll indicated that after Beijing lifted COVID restrictions late last year, factory activity in China declined at a slower rate in January.