South Korea's GDP fell out of the top ten globally | South Korea | Global

Introduction: Jin Yunlin stated that South Korea's trade deficit has been gradually narrowing since the beginning of this year, and it remains to be seen whether the South Korean economy will experience a V-shaped or L-shaped recovery.

If we look at the total GDP, South Korea, known as the "canary" of global trade, is no longer one of the top ten economies in the world.

The recent data released by the Bank of Korea shows that South Korea's nominal GDP in 2022 is approximately $1.67 trillion, with the United States ranking first, with a nominal GDP size of approximately $25.46 trillion; China ranks second with $17.88 trillion; The third place is Japan, about 4.23 trillion US dollars.

According to the data, South Korea's nominal GDP fell out of the top ten globally last year, ranking 13th, behind Italy, Brazil, and Australia.

In response, South Korean media exclaimed: South Korea is no longer the top ten economic power in the world.

"The decline in rankings is due to the weak Korean won and poor export performance. This is suppressing economic development," said Sung Tae Yoon, an economics professor at Yonsei University. "It is now necessary to focus on industries outside of semiconductors and those that can find long-term growth drivers to revive the economy."

Is it all due to the strengthening of the US dollar?

Nominal GDP is the total value of all goods and services produced during a specific period of time, which can be used to measure the economic scale of a country. According to this statistical caliber, South Korea first entered the global top ten in 2005, but has since fallen out of the "top ten clubs" several times before 2019, returning to tenth place in 2020 and 2021.

If calculated in Korean won, South Korea's nominal GDP in 2022 is 2161 trillion Korean won, a year-on-year increase of 3.9%. However, due to the depreciation of the Korean won, it decreased by 7.9% year-on-year in US dollars. An official from the Bank of Korea said, "Due to the strengthening of the US dollar last year, most exchange rate conversion indicators have shown poor performance."

Under the strong US dollar, preliminary statistics released by the Bank of Korea in March showed that the Korean won's exchange rate against the US dollar fell by an average of 12.9% annually last year. Therefore, in addition to nominal GDP, in US dollars, South Korea's per capita gross national income dropped to 32600 US dollars last year, a year-on-year decrease of 7.7%.

In fact, South Korea, an export-oriented economy, also experienced an unprecedented trade deficit last year. The report "Import and Export Trends for December 2022 and the Whole Year" released by the South Korean Ministry of Industry, Trade, and Resources at the beginning of this year showed that South Korea's trade deficit in 2022 was 47.2 billion US dollars, setting a new historical high. Specific statistical data shows that the export value of South Korea in 2022 was 683.9 billion US dollars, a year-on-year increase of 6.1%; The import value was 731.2 billion US dollars, a year-on-year increase of 18.9%. The trade deficit of 47.2 billion US dollars is the first time in 14 years that South Korea has experienced a trade deficit since the global financial crisis in 2008, and its scale is twice that of 1996 before the financial crisis, setting a new historical record.

Since last year, the contraction of global demand, coupled with the sluggish storage semiconductor industry, has seriously dragged down the performance of South Korean exports. Since October 2022, South Korea's exports have been experiencing negative year-on-year growth for 9 consecutive months, with exports continuing to decline year-on-year in the first 10 days of July. Looking at the segmented trade export structure of South Korea, semiconductors account for about 20%. Since August 2022, the export value of South Korea's semiconductor industry has been declining year-on-year for 11 consecutive months, with multiple declines exceeding 40%.

As the largest export market in South Korea, the trade structure between China and South Korea has also undergone significant changes. According to South Korean media reports, the long-standing trade surplus between South Korea and China has shifted. In 2022, South Korea's exports to China amounted to $155.81 billion, a decrease of 4.4% from the previous year's $162.91 billion. Since October 2022, South Korea has experienced a rare continuous trade deficit with China, and the scale continues to expand.

Professor Huang Fei, the head of the Seoul Graduate School of Science and Technology, told First Financial that in Huang Fei's view, Chinese companies can now be found in the fields of LCD panels, smartphones, electric vehicles, and new energy batteries that used to have relative competitive advantages in South Korea.

New changes in trade structure

Since the beginning of this year, the global pandemic has emerged, can the South Korean economy overcome its shadow? The Bank of Korea has given a less optimistic expectation, stating that it expects the country's actual economic growth rate to hover around 1.5% this year, and that "the likelihood of the country's total economic size returning to the top ten in the future is not high.".

The Economic Outlook Update Report released by the Bank of Korea on May 25th believes that domestic economic growth in South Korea continues to be weak, and the 2023 economic growth forecast for South Korea has been lowered from the original 1.6% to 1.4%, which is lower than the recent growth forecast of 1.5% proposed by institutions such as the International Monetary Fund, Asian Development Bank, and Korea Development Research Institute.

As for South Korea's most dependent semiconductor exports, the situation did not improve in the first half of this year. The latest data from South Korean customs shows that in the first 10 days of July 2023, South Korean semiconductor exports decreased by 36.8% year-on-year. However, it is worth noting that while South Korean semiconductor exports are declining, South Korean automobile exports are catching up. According to statistics from the South Korean side, the trade balance of South Korean automotive vehicles has jumped to the top position on a monthly and quarterly basis since the fourth quarter of last year, significantly ahead of semiconductors. In the first 10 days of July, the growth rate of South Korean passenger car exports has reached 25%.

In the view of Korean scholar Kim Yun lin, it is only a matter of time before automobile exports replace semiconductors as the top exporter in South Korea. According to sources from the Korea Trade Association, considering the sharp decline in semiconductor exports and the sustained strength of automobile exports, the positions of the two export varieties are about to change: automobiles are expected to return to the top position in export volume after 12 years, replacing semiconductors as the strongest pillar of South Korean exports.

At the same time, the phenomenon of South Korea's trade with China going from positive to negative continued in the first half of this year. Among them, the increase in imports of industrial raw materials such as batteries and batteries, as well as computers and electrical appliances, which are highly dependent on China's imports, is the main source of the deficit. In the first 10 days of July, South Korea's exports to China continued to decline year-on-year, with a decrease of 20.6%, marking the 13th consecutive month of decline. At the same time, South Korea's exports to the United States, Vietnam, Japan and other places have also decreased, while exports to the European Union and India have increased.

However, Jin Yunlin told First Financial reporters that South Korea's trade deficit has been gradually narrowing since the beginning of this year, and it remains to be seen whether the South Korean economy will experience a V-shaped or L-shaped recovery in the future. Officials from the South Korean Ministry of Industry, Commerce, and Resources are more optimistic, and it is expected that South Korea's semiconductor exports will partially recover from the second half of the year. However, Jin Yunlin believes that as the semiconductor industry is dragged down by various external factors, it is still difficult to predict the time of industry recovery and the driving effect on South Korean exports.