Additional Material
Short Term Prospects for Korea's Exports
In 1999, greater competition among Asian countries in a shrinking world
market may limit Korea's export recovery. The situation could become even
more difficult if the US economy experiences a downturn. However, the stronger
yen, low international commodity and raw material prices, domestic corporate
and industrial restructuring, lowered labour costs and falling interest rates
will assist Korean exports and recovery.
Reflecting a contraction in imports, Korea's trade surplus soared to over
US$40 billion in 1998. With exports remaining sluggish and a recovery in
imports (as stocks are rebuilt) over the next twelve months, most analysts in
Korea expect the trade surplus to decline to between US$25-30 billion in 1999.
Exports of machinery, motor vehicles and semiconductors will show a
recovery in 1999 while overseas steel sales are expected to fall.
Machinery
Since the start of the economic crisis most industrial sectors have
experience stagnation due to sluggish domestic demand and a weak export
markets. According to estimates by the ministry of Commerce Industry and
Energy (MOCIE) exports of machinery fell by 6% in 1998, but modest recovery
(1.8%) in exports is expected in 1999 as demand in industrial countries picks
up.
| 1997 | 1998 (estimate) | % change | 1999
(forecast) |
% change | |
|---|---|---|---|---|---|
| Production (bil won) | 35,403 | 27,645 | -21.9 | 28,457 | 2.9 |
| Domestic demand (bil won) | 42,213 | 26,648 | -37.4 | 27,884 | 5.5 |
| Exports (US$m) | 9,062 | 8,815 | -6.0 | 8,671 | 1.8 |
| Imports (US$m) | 16,230 | 7649 | -52.9 | 8,230 | 7.6 |
| Capacity utilisation (%) | 81.1 | 62.5 | -13.0 | 70 | 12 |
Source: Ministry of Commerce, Industry and Energy, 1998, 'Trends in the Sectoral Real Economy', November, Seoul, (in Korean).
Motor vehicles
Domestic motor vehicle demand collapsed in 1998 and with a small decline in
exports production fell by 25.5% overall.
However, in 1999, MOCIE expects motor vehicle manufacturers are to produce
2.4 million vehicles, up 16.7% on the 2.1 million produced in 1998. Domestic
sales are expected to grow by 20% in 1999, while MOCIE forecasts exports to
increase by 11% to 1.5 million vehicles. Wider recognition of Korean cars by
foreigners, strong competitiveness and a focus on sub compact cars, which
feature low prices and low maintenance costs, will spur the export market. The
motor vehicle industry in Korea has seen considerable consolidation, with
Hyundai's acquisition of bankrupt Kia Motors and Daewoo's acquisition of
Ssangyong Motors. These changes will lead to a more competitive motor vehicle
industry in Korea.
| 1997 | 1988(estimate) | %change | 1999(forecast) | %change | |
|---|---|---|---|---|---|
| Production ('000 cars) | 2,818 | 2,100 | -25.5 | 2,450 | 16.7 |
| Domestic demand ('000 cars) | 1,513 | 750 | -50.4 | 950 | 26.7 |
| Exports ('000 cars) | 1,317 | 1,350 | -2.5 | 1,500 | 11.1 |
| Imports ('000 cars) | 20 | 3 | -85.0 | 6 | 200.0 |
| Capacity utilisation (%) | 68.0 | 49.7 | -13.0 | 57.7 | 16.1 |
Source: Ministry of Commerce, Industry and Energy, 1998, 'Trends in the Sectoral Real Economy', November, Seoul, (in Korean).
Semiconductors
Exports of semiconductors fell by 5.3% in 1998, but the decline was
arrested in the final quarter of the year amid price rises for computer chips.
In particular the prices of DRAM (dynamic random access memory) chips has
recovered after falling to their lowest levels in mid-1998.
Production of semiconductors is expected to expand by 11% in 1999 to US$20
billion. Exports are forecast by MOCIE to grow by 10% to US$18 billion.
Competition with Japanese semiconductor producers is expected to be fierce as
Japanese producers seek to expand distribution and market share.
| 1997 | 1988 (estimate) | % change | 1999 (forecast) | % change | |
|---|---|---|---|---|---|
| Production (bil won) | 19,342 | 18,300 | -5.4 | 20,313 | 11.0 |
| Domestic demand (bil won) | 14,806 | 13,500 | -8.8 | 14,515 | 7.5 |
| Exports (US$m) | 17,424 | 16,500 | -5.3 | 18,150 | 10.0 |
| Imports (US$m) | 12,888 | 11,500 | -10.8 | 12,352 | 7.4 |
| Capacity utilisation (%) | 100 | 98.0 | -2.0 | na | na |
Source: Ministry of Commerce, Industry and Energy, 1998, 'Trends in the
Sectoral Real Economy', November, Seoul, (in Korean).
Steel industry
The recession in major industries such as motor vehicles and construction
led to a dramatic decrease in domestic demand for steel in 1998 (-36.6%). The
decline in domestic demand was largely offset by the strong growth in exports,
(40.8%), reflecting the improved competitive position of major producers, such
as POSCO, following the won depreciation.
However, Korea is facing rising pressure from trading partners to restrict
steel exports. Whereas domestic demand will rise in 1999 on the back of
recovery in the construction and motor vehicle industries, exports are
forecast to decline slightly, (-4.8%), amid mounting trade fiction in major
markets like the United States and European Union. Although Korea's steel
exports to China are expected to surge, as China recovers from massive floods
in 1998. Imports of steel goods are also expected to contract, due mainly to
expanded supply by domestic producers.
| 1997 | 1988(estimate) | %change | 1999(forecast) | %change | |
|---|---|---|---|---|---|
| Production (bil won) | 42,554 | 38,458 | -9.6 | 39,967 | 3.9 |
| Domestic demand (bil won) | 38,146 | 25,280 | -36.6 | 27,520 | 8.9 |
| Exports (US$m) | 11,079 | 16,278 | 40.8 | 15,494 | -4.8 |
| Imports (US$m) | 9,396 | 3,100 | -65.2 | 3,047 | -1.7 |
| Capacity utilisation (%) | 98.2 | 89.1 | -9.3 | 93.0 | 4.4 |
Source: Ministry of Commerce, Industry and Energy, 1998, 'Trends in the Sectoral Real Economy', November, Seoul, (in Korean).
Other industries
Other key export sectors, such as shipbuilding, communications, office machinery, home electronics and textiles are expected to show recovery in 1999.
Of the Korean shipbuilding industry is running at full capacity and outstanding gold is part at the record high. Korea's three major shipbuilders-high on thy, Samsung, and a wound-have a backlog of orders for the next two years. Telecommunications, home electronics and office machinery exports, also are expected to continue to grow strongly in 1999 among major export products growth should remain buoyant for motor of phones, fax machines, monitors, computers, and hard drives.
The petrochemicals industry and textiles industries are also expected to record positive export growth rates in 1999.