Country Trade View: South Korea. Trends in global trade

Transcription

1 Country Trade View: South Korea Trends in global trade General Markets Analysis / September 2016

2 Summary The Korean economy is heavily reliant on foreign supply of raw materials and fuel imports. Fuels are the country s largest import category and are mainly imported from Saudi Arabia and the UAE. Following this, China, Japan and the US are the largest source countries of overall Korean imports, each making up 10-20% of total imports. ING foresees a slow recovery of imports following the sharp drop in 2015 (-17%). ING estimates that over imports will grow at an annual average of 1.4%. Imports are not expected to show a widespread recovery across all product groups. The strongest recovery takes places within commodity-related product groups and road vehicles & transport equipment. These growth rates are partly caused by the expected price increases of oil and some other commodity prices and the increased purchasing power of Korean consumers. reversing, which is one of the reasons we forecast only a very moderate recovery for Korean exports (1.5% growth per annum over ). Korean exports to other countries are expected to perform somewhat better, though total goods exports is not expected to reach pre-2015 levels in the next four years (see graph). The services sector is becoming more important. Between 1990 and 2015, contributions to GDP made by the services sector have increased by 7.9 percentage points, from 51.5% to 59.4%. Also, the services sector s contribution to exports has increased slightly, from 3.7% in 1990 to 7.1% in Contributions made by agriculture have declined from 9.1% to 2.4%. Contributions made by the industrial sector have remained fairly stable at around 38.5%. Korea is an important exporter of office, telecom & electrical equipment, chemicals, and road vehicles & transport equipment. Much of these goods are exported to China and the US, which are the main destinations for Korean exports and accounted for 30% and 14%, respectively, of total exports in Korean trade in goods (US$ bn) The Korean economy is highly dependent on developments in the world economy as exports represent 38% of GDP. Korea is the world s 6 th -largest exporter. The slowdown in Korea s main trade partner has reduced demand for Korean goods. Besides the cyclical effects that have reduced overall Chinese demand, structural causes also appear to be at play. Chinese businesses increasingly use domestic suppliers for intermediate goods, with a negative impact on demand for Korean intermediate goods. There are no signs of this trend Total Goods Exports Total Goods imports About International Trade Analysis at ING ING International Trade Analysis aims to help ING s (inter)national clients develop their knowledge and capabilities for doing business across borders, and contribute to the public debate on internationalization. We do this by providing insights on the current and future economic trends and international trade developments worldwide. Country trade view South Korea September

3 Economic profile Economy Expectations South Korea trade profile: Composition (USD bn), destination and origins of goods (% of total), 2015 GDP growth (Real) (%) GDP nominal (bn, USD) 1, , ,434.2 GDP per capita (USD) 25, , ,999.2 Exchange rate KRW/USD Inflation (%) GDP composition by sector Agriculture (%) Industry (%) Services (%) Population Other indicators Population (m) 49.1 Unemployment rate (% of total labour force) years and over (% of total population) Office, telecom & electrical equipment Exports $176.1 Imports $72.0 Other manufactured goods Exports $95.5 Imports $63.6 Fuels Exports $44.5 Imports $84.4 Chemicals Exports $56.2 Imports $34.5 Industrial machinery Exports $46.2 Imports $35.8 North America Export 16.2% Import 11.8% South and Central America Export 5.1% Import 3.6% Textiles Exports $13.8 Imports $12.3 EU Export 9.1% Import 13.1% Africa Export 2.4% Import 1.6% CIS Export 1.4% Import 2.8% Exports (USD bn) Imports (USD bn) Trade balance (USD bn) 90.4 Asia Export 64.0% Import 62.5% Pharmaceuticals Oceania Export 2.5% Import 4.2% Exports $1.6 Imports $4.7 Competitivesness rank World Economic Forum 26/144 26/140 Ease of doing business rank World Bank 7/189 4/189 Exports as % of GDP Credit rating S&P Moody s Fitch AA Stable Aa2 Stable AA Stable Road vehicles & transport equipment Exports $60.5 Imports $15.5 Ores & Metals Exports $12.0 Imports $24.8 Basic food Exports $3.7 Imports $20.2 Agriculture & raw materials Exports $3.3 Imports $4.5 Beverages & tobacco Exports $1.5 Imports $0.9 Other products Exports $4.9 Imports $1.1 Sources: ING, IMF World Economic Outlook, UNCTAD, Trading Economics, national sources Product group amounts in USD bn, and for the 53 partner countries distinguished Country trade view South Korea September

4 South Korea s economic environment Moderate acceleration in economic growth Expected Real GDP Growth South Korea United States Eurozone The Korean economy is on a lower growth path. Korea is an export-driven economy and thus highly sensitive to developments in the world economy. As growth in trade is expected to recover somewhat from the weak performance in 2015, ING estimates the Korean economy to grow slightly faster in 2016: 2.8% instead of the 2.6% in For 2017, we expect 3.0%. However, it remains significantly below the +5% growth rate seen during most of the 90s and 00s. 2.6% 2.8% 3.0% 2.4% 1.6% 2.1% 1.6% 1.5% 1.6% Results of the three-year innovation plan introduced in 2014 are mixed. Korea increased its ranking in the World Bank s ease of doing business ranking, moving from place 7 in 2014 to 4 in Foreign direct investment in Korea reached an all-time high in Q42015 before falling back sharply in Q Still, according to the OECD, productivity growth lags the leading OECD countries, especially in the services sector. The barriers to entrepreneurship are high and the image of entrepreneurship is poor (OECD Economic Survey of Korea 2016). Product market regulation is the 4 th -moststringent among the OECD countries Low government debt and record foreign currency reserves. Gross government debt (35.9% of GDP) is relatively low, especially compared with other developed economies. South Korea managed to increase its foreign currency reserves further. At the beginning of the year, it hit an all-time high of 375bn USD; 10 times the 2015 monthly import bill. Other advanced economies*** 2.0% 2.1% 2.4% Commonwealth of Independent States** -2.8% -1.1% 1.3% Emerging and Developing Europe* 3.5% 3.5% 3.3% Middle East and Northern Africa 2.3% 2.9% 3.3% Developing Asia 6.6% 6.4% 6.3% Latin America 1.5% -0.1% -0.5% * Albania, Bulgaria, Croatia, Hungary, Lithuania, Macedonia, Montenegro, Poland, Romania, Serbia and Turkey ** Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Ukraine *** Australia, Czech Republic, Denmark, Hong Kong SAR, Iceland, Israel, Korea, New Zealand, Norway, San Marino, Singapore, Sweden, Switzerland, and Taiwan. Source: ING Forecasts May 2016, IMF World Economic Outlook April 2016 Country trade view South Korea September

5 Imports by product group No broad recovery of imports Imports by product groups, (ranking based on 2016 levels; USDbn) Imports of most product groups will grow during Road vehicles and transport equipment will grow the most. Increased consumer purchasing power translates into increased demand for durable and luxury goods. Given that import growth outpaces the export growth of these products, the production of these goods are not (all) for domestic consumption. Fuels are Korea s largest and second-fastest-growing import product. This is not very surprising as Korea hosts three of the worlds largest oil refineries. In addition, ING expects a gradual recovery of commodity prices. The oil price will rise gradually to USD50 per barrel in Therefore, fuel imports are estimated to grow annually at 3.1%. Fuels Office, telecom and electrical equipment Other manufactured goods Industrial machinery Chemicals Import package reflects the county s role in global value chains. Office, telecom & electrical equipment, other manufactured goods, and road vehicles & transport equipment are the country s 2 nd and 3 rd largest import goods. Further, they are also the country s 1 st and 2 nd largest export product groups. Hence, lots of these products are likely to be reexported. Ores and Metals Basic food Road vehicles & transport equipment Textiles Pharmaceuticals Agriculture and raw materials Other products Beverages and tobacco Country trade view South Korea September

6 Imports by origin Regional focus of imports Main origins of imports, (rankings based on 2016 levels; USDbn) East Asia largest destination region for Korean exports. China, Japan and Taiwan make up 38% of total imports. ING forecasts that China will remain and extend its position as the main import partner. Japan and Taiwan are the country s 2 nd and 7 th import partners Strong regional focus is highlighted in the top-10 bilateral import flows and the top-5 bilateral import flows by product group. With the exception of Germany, these suppliers of Korean imports are made up of countries that are located in East Asia. Further, the majority of these trade partners produces intermediate goods or supply raw materials. The most important imported product groups from China and Japan are office, telecom & electrical equipment, and other manufactured goods. Further, two of five are fuel products that originate from the UAE and Saudi Arabia. By the end of 2016, the UAE is expected to have taken over Saudi Arabia as Korea s main supplier of fuels. This is in line with a current trend in which Saudi s direct competitors, Russia, Iraq and the UAE, pursue an aggressive strategy to take over Saudi Arabia s leading position in key markets such as India, Thailand and Taiwan Top-5 largest import flows by product group and country of origin (USDbn) South Korea China Japan United States Germany Saudi Arabia United Arab Emirates Taiwan Russian Federation Product group Origin CAGR (%) Office, telecom and electrical equipment China Other manufactured goods China Fuels United Arab Emirates Fuels Saudi Arabia Other manufactured goods Japan Australia Malaysia Sources: ING, IMF World Economic Outlook, UNCTAD, National Statistical Services, Rating Agencies *Compound Average Growth Rate Country trade view South Korea September

7 Exports by product group Exports grow slightly more than imports Exports by product groups, (rankings based on 2016 levels; USDbn) The largest export product group are office, telecom & electrical equipment and other manufactured goods. According to our trade model, these product groups are expected to remain the country s largest export product groups in the years up to However, they are predicted to grow slower than their imports. A slow recovery of world trade and Chinese demand caused lower export growth. Road vehicles & transport equipment important for export as well. The country s third export product group is road vehicles & transport equipment and it s the second product group when one looks at net export value. This coincides for instance with the strong global rise of major Korean car manufacturers. Fuels is one of the strongest growing export product groups. The anticipated increase in the oil price will contribute to a recovery of fuel trade flows. Office, telecom and electrical equipment Other manufactured goods Road vehicles & transport equipment Chemicals Industrial machinery Fuels Textiles Ores and Metals Other products Basic food Agriculture and raw materials Pharmaceuticals Beverages and tobacco Country trade view South Korea September

8 Export by destination Asia remains dominant, but shift towards the US is emerging China will remain Korea s main export destination in the years to come but puts a drag on Korean exports. Within South Korea s top-10 export partners, China remains the country s main export destination. However, we expect exports to China to decrease significantly. Apart from cyclical factors, there may be other (structural) factors. First: Excess supply on the Chinese market and substitution of foreign suppliers by domestic ones. Korean producers of machinery and equipment exports are hit by China s excess manufacturing capacity. Excess supply by Chinese firms in the domestic market drives out Korean products. This reinforces the trend of foreign suppliers being substituted by domestic (Chinese) suppliers. Further, Korean intermediate goods are increasingly substituted by domestic goods. Strong competition of Chinese producers and changing Chinese consumer preferences. Chinese final products such as laptops and telephones are increasingly similar to those manufactured by Korean firms. This leaves the Korean goods vulnerable to competition from Chinese final products. In addition, the changing regional preferences of Koreans appear to play a role. In every sector in which Korea loses, others (especially the US) gain. The US gains in importance as main export destination. Within the top 5 of largest export flows by product and country of destination, there is only one product group that is expected to grow over : road vehicles & transport equipment to the US. The other four within this top 5 are expected to decline. China s contribution to this development catches the eye. All the flows of these product groups to China will decline over Main destinations of exports, (rankings based on 2016 levels; USDbn) Top 5 largest export flows by product and country of destination (USDbn) South Korea China United States Product group Destination CAGR* (%) Office, Telecom and electrical equipment China Other manufactured goods China Road vehicles and transport equipment United States Chemicals China Office, Telecom and electrical equipment United States Sources: ING, IMF World Economic Outlook, UNCTAD, National Statistical Services, Rating Agencies *Compound Average Growth Rate Hong Kong SAR, China Japan Vietnam India Taiwan Singapore Mexico Australia Country trade view South Korea September

9 ECD ING Bank N.V. To find out more, please contact: Marco Loonstra International Trade Analysis Raoul Leering Head of International Trade Analysis Robert Gunther Sr. Communications & PR manager robert.gunther@ing.nl Arjen Boukema Sr. Communications & PR manager arjen.boukema@ing.nl Tim Condon Chief Economist Asia tim.condon@asia.ing.com Disclaimer This publication has been prepared by ING (being the commercial banking business of ING Bank N.V. and certain subsidiary companies) solely for information purposes. It is not investment advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. The information contained herein is subject to change without notice. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. This publication is not intended as advice as to the appropriateness, or not, of taking any particular action. The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions. Copyright and database rights protection exists in this publication. All rights are reserved. ING Bank N.V. is incorporated with limited liability in the Netherlands and is authorised by the Dutch Central Bank. Uni- Country trade view South Korea September