Trade deficit of $10 billion, consumption decline, Chinese demand weakening, deflation strengthening
Deflation in China is growing due to weakening demand, and Korea has a trade deficit of $10 billion last year due to a decline in trade with China, indicating a continued recession due to falling imports and decreased consumption.
According to the Korea National Statistical Office, the amount of construction orders from January to November last year plummeted by 26.4% compared to the same period last year, and the retail sales index for goods consumption decreased by 1.4%, showing an economic recession caused by a strengthening decline in consumption.
The Bank of Korea announced the continuation of the economic downturn by presenting the same figure of 1.9% growth rate in private consumption this year as last year, and KDI lowered the growth rate of 1.8% from the continued sluggishness in product consumption this year.
In November of last year, China's consumer prices fell at the fastest rate in three years, and as domestic demand continued to slump, factory price deflation deepened.
China's National Bureau of Statistics told Reuters on the 31st, "Some companies participating in the survey reported that a decline in overseas orders and a lack of effective domestic demand are the main difficulties facing companies," and that "the current external environment is increasingly complex, serious and uncertain." .
In China, weak external demand led to a continuous decline in factory activity and a decline in the new export order index.
China's factory price sub-index also continued to decline, with signs of deflation and operating profit pressure becoming stronger, and only the official non-manufacturing purchasing managers' index (PMI), including the service and construction industries, rose.
Reuters said this was “driven by the recovery of the broader services sector.”
Ni Wen, an economist at Huabao Trust, said of the Chinese economic downturn, "Policy support must be strengthened. Otherwise, the trend of slowing growth will continue," adding, "Falling prices have had a significant impact on corporate profits and will further affect people's employment and income." “It has had a huge impact and this vicious cycle can continue,” he told Reuters.
Korea's exports to China fell 12.5% last year due to a sharp decline in semiconductors.
Korea's overall exports decreased by 7.4% last year, showing a large trade deficit for two consecutive years.
The Ministry of Trade, Industry and Energy's 'Annual Import and Export Trends' shows that last year's exports decreased by 7.4% from a year ago to $632.69 billion (KRW 821.8643 trillion), and imports decreased by 12.1% to $642.67 billion (KRW 834.8283 trillion), resulting in a trade deficit. It is $9.97 billion (12.951 trillion won).
Exports increased by 30% compared to the previous year (USD 54.1 billion) to USD 70.9 billion (KRW 92.0991 trillion) due to the robust export of high-priced vehicles, including electric vehicles and SUVs. The increase in general machinery exports was limited to 4.6% compared to the previous year, and the increase in ship exports was limited to 20.9%. Exports to the US amounted to USD 115.7 billion (KRW 150.2943 trillion), the highest ever, surpassing ASEAN for the first time in 18 years since 2005 and ranking second after China.
The decline in imports was due to energy imports reaching $13.76 billion (KRW 17.8742 trillion), a 17.6% decrease from the previous year.
Government Minister of Trade, Industry and Energy Yoon Seok-yeol said in an announcement of the trade deficit on the 1st, "Despite difficult conditions last year, exports were positive and trade was positive last October. “We were able to overcome the export crisis early by simultaneously achieving a balance surplus, significantly reducing the trade balance deficit, and demonstrating growth in the second half of the year,” he said.
Media companies that published articles on the trade deficit today presented forecasts for this year’s economic recovery as ‘low and low and achieved’ and ‘confirmation of semiconductor recovery’.
Yonhap News reported on the 1st, citing data from the Organization for Economic Co-operation and Development (OECD), that the growth rate of private consumption was one-sixth of the average of the seven developed countries (G7) in the third quarter of last year.
In Korea, the growth rate of domestic private consumption, which was 4% at the beginning of last year, plummeted to 0% in the third quarter due to high interest rates and high inflation.
Last year, income showed a dramatic increase of 1% while food prices rose 6.8%.
According to Statistics Korea's index, the consumer price increase rate of 6.8% for processed foods last year was double the overall rate (3.6%), and the disposable income of all households only increased by around 1%.
Trend Force, a semiconductor research firm, said in its first quarter semiconductor outlook, “The smartphone market is often an early indicator of an economic recession, so buyers and sellers are continuously adjusting inventory in the supply chain,” adding, “Inventories have reached their lowest point and the impact of manufacturing declines.” “As this continues, a strong rise in smartphone memory prices is beginning,” he said, analyzing the “price rise” as “panic buying” as inventory adjustments by Samsung and other companies overlap with those of China Mobile, the buyer, and “supply and demand.” It was announced on December 19th that the price had risen due to the 'gap'.
On the other hand, 'Maeil Business Newspaper' on the 1st, under the title <Memory ‘Warm Wind’, DRAM Prices Expected to Rise Further>, predicts that <demand expansion will also be noticeable in the mobile market. Trend Force predicted that mobile DRAM and NAND prices will rise significantly in the first quarter of 2024. Trend Force analyzed, “Mobile DRAM and NAND prices in the first quarter of 2024 will rise by 18-23% compared to the fourth quarter of 2023,” and added, “If purchasing sentiment is stimulated in addition to seasonal factors, the increase may increase further.” It was reported that
The article continued, <Trend Force's view is that production plans are being implemented smoothly in the mobile and information technology (IT) market. In particular, it was predicted that the production plans of smartphone OEM companies in China would proceed smoothly.
“Memory prices are likely to rise higher than other segments starting in 2024,” a TrendForce press release said. “Due to continued demand from customers and slow expansion of manufacturers' operations, these increases will widen the demand-supply gap. “It is expected that prices will rise due to the ‘demand-supply gap,’” he said.
The press release continued, “Mobile DRAM NAND flash prices are expected to rise significantly in the first quarter of 2024, with seasonal increases of 18-23%. “Such surges can be amplified in markets dominated by a few major players, or when brands’ customers feel pressured and resort to panic buying.”