Korea Trade (1st – 20th Feb.) - Capital Economics
Emerging Asia Economics

Korea Trade (1st – 20th Feb.)

Emerging Asia Data Response
Written by Alex Holmes

Korean trade data for the first 20 days of February add to the evidence that factory closures in China are disrupting local industry.

Further signs that coronavirus is hitting industry

  • Korean trade data for the first 20 days of February add to the evidence that factory closures in China are disrupting local industry.
  • The timely nature of the Korean trade data makes them a good bellwether for the health of the export sector across the region. During the first 20 days of February, exports jumped by 12.4% y/y. But this shouldn’t be taken as a positive sign. After all, there were three fewer working days in the same period last year. In working-day average terms, export values shrank by 9.3%. (See Chart 1.)
  • The fall was mainly driven by a drop in exports to China, which fell by 22.3% y/y in working-day average terms. Admittedly the data are volatile, but this seems to suggest that extended factory closures in China are weighing on demand for Korean exports. Outside Korea, Taiwan stands out as the most exposed, but Malaysia and Hong Kong are also vulnerable.
  • Despite the number of new cases continuing to fall, all the indicators suggest that economic activity in China remains very depressed. Coal consumption at power plants, for example, has stayed more than 50% below its normal levels. (See our daily-updated dashboard, “The COVID-19 coronavirus and its economic impact”.) This suggests the impact will continue for some time yet.
  • As well as being a large importer of goods, China is also a key supplier of components to the rest of the region. Korean import data also suggest disruption to industry from the factory closures in China. Imports shrank by 15% y/y in working-day average terms. (See Chart 2.) The main factor behind the decline was a 35% y/y fall in imports from China. This contrasts with a rise in imports from the US. Hyundai Motor co. was again forced to partially stop production because of a shortage of components on Tuesday.
  • As well as the automotive sector, our analysis suggests that the region’s textile and electronics sectors look vulnerable. Vietnam is likely to be the worst affected country. (See our Update, “How big will the disruption be to Asian supply chains”, 13th February.)
  • Today’s data add to evidence that coronavirus is having a significant impact on industry. And with the number of cases in Korea increasing sharply, the risk that the domestic economy will be affected has risen. (See our recent Update, “Korea: impact of coronavirus to worsen”, 20th February.) If people avoid public spaces, such as restaurants and shopping malls, it would trigger an even sharper slowdown in the economy. It now looks almost certain that the Bank of Korea will cut its main policy rate by another 25bps next Thursday, to 1.00%.

Chart 1: Korea Exports (% y/y)

Chart 2: Korea Imports (% y/y)

Sources: Korea Customs Service, Refinitiv, Capital Economics

Sources: Korea Customs Service, Refinitiv, Capital Economics


Alex Holmes, Asia Economist, +65 6595 1515, alex.holmes@capitaleconomics.com

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