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[Editorial] Sluggish exports

Rising value of the won adds to worsening conditions faced by Korean exporters

South Korea’s exports, a main driver of its economic growth, rose for the first time in seven months in September, helped by increased shipments of chips and automobiles as its trade partners gradually resumed business activities hit by the pandemic crisis.

Outbound shipments from Asia’s fourth-largest economy reached $48 billion last month, up 7.7 percent from a year earlier, according to figures from the Ministry of Trade, Industry and Energy. The gain marked the largest monthly increase since October 2018.

But the country’s exports tumbled 28.8 percent on-year in the first 10 days of October due partly to fewer working days. In what trade officials see as an encouraging sign, per-day exports rose 2.8 percent in the 10-day period, with the shipment of semiconductors, the nation’s key export item, growing 11.2 percent.

Finance Minister Hong Nam-ki, who doubles as deputy prime minister for economic affairs, said last week the government would spare no efforts to maintain the momentum of recovery in exports in the fourth quarter.

But it seems uncertain whether the country could see its exports continue to increase down the road amid a possible resurgence of coronavirus infections around the world in the coming months. A second wave of coronavirus outbreaks have already forced major European countries to heighten quarantine measures to the highest level, locking down communities and closing factories.

The breakdown of US fiscal relief talks last week is also adding to uncertainties in the global recovery.

The coronavirus pandemic is likely to leave “long-lasting scars” on the world economy, although an uneven global economic recovery is underway, according to an advisory body of the International Monetary Fund.

A statement issued Thursday by the International Monetary and Financial Committee said that the tentative recovery underway on the back of extraordinary macroeconomic policy measures is “marked by significant uncertainty, with the pandemic continuing to spread in places.”

In a recent survey of 1,051 Korean exporters, 41.5 percent said outbound shipments were unlikely to begin to recover until the second quarter of 2021, with about 28 percent forecasting a recovery would start in the first half of the year.

The survey conducted by the Korea International Trade Association showed local exporters predicting worsening conditions in the US, the EU and Japan outnumbered those expecting improvements. They were relatively more upbeat about the prospect of markets in China and the 10-member Association of Southeast Asian Nations.

What is also worrisome for local exporters is a continuous rise in the value of the Korean won against the US dollar, which could weaken their price competitiveness against companies in Japan and emerging-market countries in particular.

The won-dollar exchange rate strengthened to 1,143.2 won per dollar Thursday before slightly weakening to 1,147.4 won the following day. The local currency has strengthened by more than 40 won over the previous month, marking the first time it had gone below the 1,150 won level since April last year.

Vice Finance Minister Kim Yong-beom said last week that the strengthening of the won “appears to be relatively speedy.”

The won is expected to continue to appreciate against the dollar in tandem with the Chinese yuan’s appreciation against the greenback, which seems fit for the US position.

It tends to fluctuate in line with movements in the value of the yuan with Korea relying on China, the world’s second-largest economy, for a quarter of its exports.

Foreign exchange authorities here need to be adroit in what is known as smoothing operations to keep the won’s value stable while avoiding accusations of currency manipulation.

More fundamentally, the government should work out comprehensive measures to support local exporters, including those to help them diversify markets and develop new technologies.

President Moon Jae-in’s administration and lawmakers of the ruling Democratic Party of Korea are also urged to refrain from introducing a horde of additional restrictions on corporate activities.

Through August this year, levies collected from local companies decreased by 14.6 trillion won ($12.7 billion) on-year, reflecting deteriorating business conditions at home and abroad. Amid this sluggish corporate performance, a steep reduction in exports would push the economy deeper into a predicament.
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