South Korea’s exports likely to recover slightly in price and volume terms in Q4

South Korea’s exports have been rebounding gradually in USD terms; however, volumes have not shown any signs of improvement. The improvement in exports has been entirely driven by prices. For the 2017 growth outlook, exports are quite vital as they are likely to counter an anticipated softness in construction, noted Societe Generale in a research report.

In the third quarter, exports rebounded to -5 percent year-on-year growth, an improvement from -13.6 percent in the first quarter. In sequential terms growth turned positive, coming in at 2.6 percent. But the growth in volume has been lingering around zero in terms of both GDP and terms of trade in 2016. This shows that the recent recovery in export has been led by prices. The weakness in volume growth suggests that there might be no positive impact on GDP growth.

The breakdown by product indicates that the recent rebound in USD terms has been driven by industrial materials that recorded a recovery in prices after the decline in 2015. Year-on-year growth in chemicals, oil products and metals indicated a considerable rebound between the first half of 2016 and the third quarter. Also, a relatively modest rise in electronics exports was seen during the same period, whereas auto exports continued to register a sizable contraction year-on-year.

“We expect only a small recovery in exports, both in USD and volume terms, in 4Q16, mainly driven by the normalisation of auto exports after the strike”, added Societe Generale.

The global economy is expected to grow steadily in 2017. The effect of possible U.S. fiscal easing is unlikely to be felt until 2018, whereas a gradual slowdown in China’s growth would persist.