2023 Economic Outlook: Record High Trade Deficit Expected to Continue into Second Half of the Year

In the first half of the year, a deficit of 29.3 billion… A total deficit of 35.3 billion won
This year, exports are expected to decrease by 9% and imports by 10.2%

Amid the record-high trade deficit this year, it is predicted that a deficit of 6 billion dollars (approximately 7.9524 trillion won) will be added in the second half of the year. Although the deficit will be smaller than before, it is expected that the deficit will accumulate again this year as the semiconductor industry continues and exports to China continue to decline.

According to the ‘Economic and Industrial Outlook for the Second Half of 2023’ released by the Korea Institute for Industrial Economics and Trade on the 30th, the first half of this year recorded $29.3 billion (approximately KRW 38.8342 trillion), and an additional $6 billion in deficit in the second half of the year. A total deficit of 35.3 billion dollars (approximately 46.7866 trillion won) is expected.

The deficit in the second half of this year is expected to decrease by 4.33% compared to the same period last year (loss of $36.9 billion). However, contrary to the expectation that exports will turn positive in the second half, the decline will continue and the deficit will accumulate in the second half.

Customs clearance export performance in the second half of this year is expected to decrease by 5.2% year-on-year to $315.6 billion. Previously, export performance was expected to turn positive in the second half, but it is interpreted that the decline will continue.

As a result, even if the total annual deficit for this year decreases slightly compared to the same period last year ($36.9 billion), it is still a serious level compared to the previous year ($29.3 billion deficit).

An official from the Korea Institute for Industrial Economics & Trade said, “Despite the increase in electric vehicles and secondary batteries, exports this year will decrease by about 9% compared to the previous year due to slowing global demand, continued recession in semiconductors, and decreased exports to China.” It is likely to decrease by 10.2% compared to the previous year due to the decline in the price of major imported goods and the exchange rate.”

This year, the global economy is expected to see limited growth as uncertainties related to Corona 19 have been significantly resolved, but the Russia-Ukraine war and risks of the global financial crisis continue. In the US economy, inflation is calming down due to the Federal Reserve’s aggressive interest rate hikes, but as the pace of improvement in employment conditions slows, small and medium-sized banks are at risk of bankruptcy.

In addition, international oil prices in the second half of this year are not expected to show a clear recovery in crude oil demand as the economic slowdown in advanced countries and economic recovery in China are combined. As production cuts by oil-producing countries are expected to be limited, an average of $76 per barrel in the second half of the year and an annual average of the upper $70 per barrel are expected.

In the second half of the year, the won-dollar exchange rate was expected to remain lower than in the first half due to factors such as the US Federal Reserve’s interest rate freeze and the reduction of risks in the financial market.

As a result, the domestic economy is expected to record a growth rate of 1.4% compared to the previous year. The recovery of exports will be delayed due to the global economic slump and slowing trade volume, and domestic demand will contract due to slowdown in consumption and investment as the impact of interest rate hikes begins in earnest.

Private consumption is expected to increase by about 2.7% this year compared to the previous year. Service consumption will continue to increase, but this is the result of poor consumer sentiment, falling prices of major assets, and falling real income.

Facility investment is expected to decrease by 0.8%, while construction investment is expected to increase by 0.7%. Facility investment is showing a slight improvement in external conditions, such as the resumption of economic activity in China and the resolution of disruptions in the global supply chain.

An official from the Korea Institute for Industrial Economics & Trade said, “While there are internal variables in the economy this year, the trade balance deficit, whether consumption continues to improve, and when exports and the semiconductor industry recover are expected to become additional variables.” /Newsis

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