(Bloomberg) — South Korean exports maintained growth momentum in January in a positive start to 2024, as demand for semiconductors continued to improve and shipments to China returned to an expansion.
Shipments adjusted for working-day differences increased 5.7% from a year earlier, according to data released Thursday by the customs office. Headline exports rose 18%, compared with economists’ forecasts for a 17.6% increase, with the outcome inflated by more working days compared with a year earlier. Overall imports declined 7.8%, as the trade surplus narrowed to $300 million.
While the growth in holiday-adjusted exports moderated from about 14% in December, a closer look shows demand for South Korea’s leading products stayed robust.
The biggest driver of the export rebound has been memory-chips. Semiconductor exports increased 56.2% from a year earlier in January, the customs office said, in the biggest rise since December of 2017.
South Korea leads the world in output of these devices chips, and Samsung Electronics Co. on Wednesday reported its profit from dynamic random access memory, a key component of its business, turned profitable even though overall income fell for a fourth straight quarter.
Solid global demand for semiconductors is a good sign for South Korea’s broader economy and provides the backdrop for a rotation in global money flows from India into North Asian economies spurred by technology prowess in recent weeks.
Read More: A Rotation From India to North Asia May Be Brewing: Taking Stock
“Considering the large role technology plays in exports, South Korea should be among the biggest beneficiaries of the rebound in global technology sectors this year,” said Austin Chang, director of analysis and forecasts at the Korea International Trade Association. “Still, the question is how much China’s economy improves.”
China’s factory activity contracted again in January, with the official manufacturing purchasing managers index reading 49.2. The US and Chinese economies are both expected to slow this year, according to consensus forecasts.
China reclaimed its position as the biggest buyer of South Korean products in January after temporarily losing it to the US a month earlier. It bought 16.1% more from a year earlier, recording the first growth in imports from South Korea in 20 months, according to the customs data.
Separately, South Korea’s exports to the US increased 26.9% from a year earlier and those to Japan rose 10.6%. India imported 5.6% more from South Korea while the European Union bought 5.2% more, according to the trade ministry.
What Bloomberg Economics Says…
“The surge in South Korea’s exports in January was inflated by a higher number of working days in the month relative to the prior year. Even so, exports adjusted for that distortion remained resilient.”
— Hyosung Kwon, economist
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South Korea’s exports emerged from a year-long slump late last year, helping the economy expand at a steady pace of 0.6% in the last three months of the year. The rebound partly offset the negative impact of credit risks surrounding the construction industry, facilitating growth in line with the central bank’s expectations.
Other products driving South Korea’s exports include automobiles, petrochemicals and shipbuilding, which underpin the nation’s broad industrial base. Many Korean products are embedded across a wide swath of global supply chains, making the nation’s shipments a good leading indicator for the health of global trade.
Automobile shipments rose 24.8% from a year earlier in January in the 19th consecutive month of growth, the customs office said. Exports of general machinery, consumer appliances and computers all grew by a double-digit pace.
High bandwidth memory in particular led the recovery in chip prices, the trade ministry said. The amount of memory in mobile devices is increasing along investment in server computers running artificial intelligence, it said.
“Electronics export growth momentum in both Taiwan and Korea in recent months has been particularly strong,” Citi Research analysts led by Johanna Chua wrote this week. “If the tech upcycle broadens out, it should be more economically meaningful to Vietnam, Singapore and Malaysia.”
How long and fast South Korea’s exports will recover this year will depend on a combination of factors, including consumer demand in major countries from the US to China and the trajectory of interest rates around the world.
“Higher interest rates may continue to limit consumer spending on goods and borrowing costs for businesses, and uncertainty remains around the extent to which Chinese demand, which is key to supporting intra-Asia trade, accelerates,” Shanella Rajanayagam and Prachi Mathur at HSBC Global Research said in a note this month. “Businesses are navigating a highly uncertain trade environment.”
South Korea has prided itself on being among the most agile in adapting to changing trade landscapes and is on alert for any impacts stemming from persistent geopolitical flashpoints, including conflicts in the Middle East. A series of elections scheduled across dozens of nations this year also will add to policy uncertainties for global trade.
(Adds economist comment, China exports and trade ministry statement)
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