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Inflation jitters, polarization feared to stymie recovery
By Lee Kyung-min
The Korean economy is showing strong signs of getting back on track following robust growth in exports and consumption, in line with a rebound in global trade, amid massive vaccination rollouts abroad.
Experts say that the much-awaited signs of recovery are a valid cause for optimism, yet they note celebrating seems premature given the varying impact across households and businesses ― a reason why government support should be targeted to best help the most affected.
Korea’s exports reported a 32-year high of 45.6 percent, in terms of year-on-year growth, in May, lifted by semiconductors, automobiles and petrochemical products. The figure was the highest May figure to date. The country’s retail sales in April reported a 2.3-percent month-on-month increase, an extension of the same robust monthly growth of March.
In its latest economic outlook report, the Organization for Economic Cooperation and Development (OECD) upgraded its 2021 growth forecast for Korea to 3.8 percent, from the 3.3 percent projected in March.
“The economy is showing signs of recovery,” Seoul National University economist Kim So-young said. “The country’s key growth drivers, especially IT product makers and automakers, are enjoying strong overseas demand. The gradual, yet certain recovery of Korea’s trading partners will bolster further growth for major exporting firms in the months to come.”
Data from the Ministry of Trade, Industry and Energy showed that Korea’s exports in May stood at $50.7 billion (56.5 trillion won), continuing their growth for the seventh consecutive month. The figure has exceeded the $50 billion mark for three straight months.
May’s growth is the largest since August 1988, when the year-on-year expansion was 52.6 percent. Also notable is the figure exceeding 40 percent growth for two consecutive months, following 41.2 percent recorded in April.
The average daily exports measured with the number of working days factored in also rose 49 percent to $2.42 billion, surpassing $2.4 billion for the first time since September 2018.
The cumulative exports from January to May were $248.4 billion, the highest figure for the first five months combined to date. Semiconductors, which account for about 20 percent of the country’s shipments, reported a year-on-year increase of 24.5 percent, showing continued growth for 11 consecutive months. Automobile exports rose 93.7 percent, and petrochemicals jumped 94.9 percent.
Seoul National University economist Lee In-ho said the figures were encouraging, upon a closer look.
“Export growth thus far was led mostly by a rise in export prices. But last month’s increase was backed by a rise in both prices and volume, indicative of the country’s strong fundamentals.”
Also underpinning the country’s recovery is private spending, led by pent-up demand coupled with fast-easing consumer sentiments following the acceleration of the vaccination drive.
Statistics Korea data showed that retail sales jumped 2.3 percent in April from the month before, and the sales measuring index stood at 120.5, the highest since the government began compiling data in 1995.
Sales of semi-durable goods, including clothes, rose 4.3 percent, followed by increases in non-durable goods, including cosmetics (2.4 percent), as well as durable goods, such as telecommunication devices and computers (0.7 percent).
By industry, sales at duty-free shops soared 57.8 percent, followed by department stores (32.4 percent), convenience stores (12.7 percent) and large discount chains (3.9 percent). Sales at duty-free shops have recorded double-digit growth for two consecutive months following March, when the figure was 16.2 percent.
Yet consumption has been polarized, as illustrated by sales at supermarkets and stores run by small merchants falling by 3 percent.
“Small businesses ― mostly run by self-employed people ― largely remain vulnerable,” Hyundai Research Institute (HRI) Deputy Director for Economies Ju Won said.
“They are clearly being left out of the post-pandemic pent-up demand, which is propped up by high-income earners. Their working-class customer base is and will continue to shrink, because people go online to find their products cheaper and to get them delivered to avoid infection. This situation warrants targeted financial assistance.”
Meanwhile, inflation remains a critical concern for the economy, as evidenced by the country’s headline inflation exceeding the central bank’s target of 2 percent for the past two months.
Statistics Korea data showed consumer prices rose 2.6 percent year-on-year in May, compared to the previous high of the same figure in April 2012. The figure for April was 2.3 percent.
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