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South Korea's exports swelled to a record amount in March, suggesting much of the international economy is so far absorbing fallout from Russia's war on Ukraine and the spread of the omicron variant in China.
Overseas shipments climbed 18.2% from a year earlier to $63 billion, the trade ministry said Friday, compared with economists' forecasts for a 19% gain. Still, the war's impact on commodity prices was reflected in imports surging 27.9% from a year earlier, resulting in a trade deficit of $140 million.
The record performance backs the Bank of Korea's assessment that trade will remain a key support for the economy and eases pressure on it to pause tightening due to the war in Ukraine. But it does strengthen the hand of those urging the BOK to do more to rein in inflation at its April 14 meeting.
The central bank in February forecast that consumer prices would climb 3.1% this year, well in excess of its 2% target. BOK Governor-nominee Rhee Chang-yong told reporters on Friday that inflation is certain to stay more elevated than that in the first half.
The war's impact was evident in declining shipments to the European Union in March, even as exports to much of the rest of the world remained resilient. Rising energy prices due to Russia's status as a major oil and gas exporter also drove up import costs and produced South Korea's third trade deficit in the past four months.
South Korea's trade data is released earlier than most other countries and its vast industrial portfolio, ranging from semiconductors to cars, helps shed light on the health of global economic activity and supply chains.
Risks Ahead
The war in Ukraine has threatened to damp global demand since it erupted in February. On top of that, lockdowns in major Chinese cities to stem the spread of omicron are a further risk for South Korean exporters.
China is a significant source of demand, turning to Korea for key materials such as displays, automobile parts and semiconductors that are needed to assemble products shipped worldwide.
“Global trade has developed a level of tolerance over the virus and is better able to cope with lockdowns,” said Hong Ji-sang, a researcher at the Korea International Trade Association. “The war certainly raises uncertainties, but its impact is limited considering Russia's share in Korean exports.”
Today's report showed average daily shipments, accounting for one fewer business day compared to a year earlier, increased 23.4% last month.
Exports to China advanced 16.6%, shipments to the U.S. gained 19.9%, while those to Asean countries rose 44.4% and to the Middle East were up 17.4%.
Total semiconductor exports increased 38% from a year earlier in March. Display shipments advanced 48.4%, while exports of wireless communications devices rose 44.5%.
A separate report from S&P Global showed a gauge of South Korean manufacturing output fell to 49.1 in March from 52.6 in the previous month, reversing an expansion trend. The manufacturing purchasing managers' index fell to 51.2 in March from 53.8 a month earlier.
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