BNY Mellon On Shifting Export Trends

The US bank notes weaker China demand has been offset by a pick in export growth to the US, see below for more details.

"One of the common factors that weighed on the performance of manufacturing in APAC in December, as per the PMIs, was a decline in new orders. That was attributed to both domestic weakness and falling external demand, with South Korea explicitly citing slower Chinese demand. This was borne out in the latest trade data, which showed exports to China down 2.9% y/y in December, or 20% lower on cumulative year-to-date basis. This is the second yearly decline, with total exports to China falling from $162bn in 2021 to $155bn (-4% ytd y/y) in 2022 and $125bn in 2023 (-20% ytd y/y).

Fortunately for South Korea, the slack in China was compensated for by trade with the US: December exports to the US hit record highs at $11.3bn, or 20.8% y/y, and 5.4% ytd y/y. Indeed, exports to the US have picked up substantially, at an average rate of 16% y/y over the past three years (2021-23). Total exports to US have grown from $74bn at the end of 2020 to $115bn as of 2023. The anticipated tech recovery is expected to secure strong export momentum again in 2024, with a further boost from a base effect.

The aforementioned developments will surely be taken into account by the Bank of Korea at its policy meeting next week. In November, the BoK turned slightly dovish, commenting that it would “...maintain a restrictive policy stance for a sufficiently long period of time”, compared with “for a considerable time” previously. The BoK then also marginally lowered its 2024 GDP forecast to 2.1% and raised forecasts for 2024 headline and core CPI to 2.6% and 2.3%, respectively.