South Korea Is Heading Towards Recession

On Wednesday, South Korea‘s January trade deficit surged to a new high due to the combined effects of extended holiday periods and weak global demand, signaling that its economy was teetering towards its first recession in three years.

South Korea, One of the Largest Economies in Asia, Shrank in the Last Quarter

Asia’s fourth-largest economy, South Korea, heavily depends on commerce for its growth. It declined by 0.4% during the October-December quarter and is now perilously close to experiencing its first recession since mid-2020 when COVID-19 hit a peak.

January saw a staggering 16.6% dip in exports, the most abrupt decline since May 2020- much beyond Reuters’ survey predictions for an 11.3% downturn. Data from the trade ministry confirmed this surprising drop-off.

Surveys predicted a 3.6% decrease in imports, but the actual figure ended up being a 2.6% drop; this resulted in an unprecedented $12.69 billion trade deficit for that particular month alone! Furthermore, with two consecutive quarters of decreasing GDP figures, there is much speculation across markets that the central bank’s increase of interest rates since late 2021 has now ceased – indicating further risk of a recession on the horizon.

The Decline in Chinese Trade Affects the South Korean Economy Badly

January’s trade performance was sluggish and the worst since the 2008/2009 financial crisis, with semiconductor exports diving 44.5% and sales to China plummeting 31.4%, according to data from the Ministry of Trade.

South Korean bond yields experienced a marked decrease as investors looked to the potential of a less stringent monetary policy, while stock and currency traders largely ignored this month’s figures. Finance Minister Choo Kyung-ho claimed that China’s extended lunar New Year holiday, combined with significant drops in computer chip prices compared to last year, caused the sharp dip in export values; ultimately, he proposed that when China reopens again, it should have an alleviating effect on these issues over time.

In predicted levels, the government foresees a 4.5% decrease in exports this year after last year’s 6.1% expansion. To prevent a recession from taking place, the Ministry of Trade has promised to try its best and provide whatever support is necessary.

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