SEOUL: South Korea’s export slump persisted in January, highlighting a rapidly cooling global economy as rising interest rates weaken demand.

Exports dropped 16.6% from a year earlier, compared with economists’ forecasts for an 11.1% decline, the trade ministry said yesterday. Imports fell 2.6%, resulting in a trade deficit of US$12.7bil .

Sluggish overseas shipments were at the core of the South Korean economy’s contraction last quarter and may persist for months to come as global consumption slows.

Confidence among South Korean exporters is low and industrial production remains weak as manufacturers maintain a cautious outlook about consumer demand.

The world economy is slowing as a result of rising rates to tackle high inflation, as well as Russia’s ongoing war in Ukraine that has fuelled oil and food prices.

China also continues to struggle to rebound following the easing of its Covid restrictions.

South Korean exports are a major barometer of global trade as the nation produces key items such as chips, displays and refined oil that straddle supply chains.

It is also home to some of the world’s largest semiconductor and smartphone makers, and a major downturn is hurting those industries and weighing on South Korea’s economic momentum.

Global demand is likely to remain subdued this year while household debt, fiscal tightening and high borrowing costs constrain South Korea’s domestic recovery, Fitch Solutions said in a note.

The economy, as a result, will probably grow 1.5% this year, less than the 1.7% forecast by the Bank of Korea (BoK), it said.

Resilient exports were a key reason why the BoK was confident the economy could withstand policy tightening over the past 18 months.

With the benchmark rate now at 3.5% - the highest since 2008 - governor Rhee Chang-yong increasingly sees economic concerns coming to the fore, while the bank keeps policy tight to prevent inflationary pressure from rebuilding.

A turnaround for South Korean exports may come from China if the world’s second-largest economy succeeds in reviving its growth engine after an extended period of Covid restrictions.

 - Bloomberg