Korea's export growth turns positive

Thanks to recovering demand from China.

DBS Group Research noted:

Export growth has turned positive in the year-on-year terms in October (1.1%), largely driven by recovering demand from China. Exports to China grew 5.6% YoY in October, accelerating from 1.0% in September and ending the decline in most months earlier this year. On the sequential basis (seasonally adjusted), exports to China have increased 9.7% cumulatively in the past two months.

November’s trade data will be released later this week. Export growth is expected to pick up further to 1.6% YoY. According to the preliminary data for the first 20 days of November, exports grew 1.7% compared to the year-ago period. Indeed, we expect Korea’s exports to continue to benefit from China’s cyclical recovery, thanks to the close trade connections with China, and the trade substitute effects resulting from the China-Japan tensions.

Product wise, electronics exports have seen particularly strong growth in recent months, in tandem with the rebound in China’s high-tech imports. Automobile exports, which were disrupted due to the labor strikes this summer, should start to pick up soon in the coming months, following the resumption of automobile production since September.

The main drag for now is vessel exports, which have fallen sharply by 60% (sa) compared to the peak levels in the beginning of last year. This should be explained by the lagging impact of the 2008 global economic downturn. As it normally takes three years to build a ship, the collapse of export orders in the shipbuilding industry in 2008-2009 should be reflected in actual exports in 2011-2012. Note that orders in the shipbuilding industry have started to pick up since 2010, which means vessel exports will improve subsequently from next year.