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SEOUL, July 2 (Xinhua) — South Korea’s economy is forecast to face challenges from U.S. protectionist moves in the second half of this year despite brisk industrial activity coming mainly from solid exports.
Exports, which account for about half of the export-driven South Korean economy, reached 297.5 billion U.S. dollars in the January-June period, up 6.6 percent from the same period of last year, data of the Ministry of Trade, Industry and Energy showed Sunday.
It was the biggest first-half figure ever recorded by the economy. Imports gained 13.1 percent to 265 billion dollars, sending the trade surplus to 32.5 billion dollars. The country’s exports topped 50 billion dollars for four months to June for the first time.
Despite the robust first-half exports, concerns emerged over the U.S. protectionist moves that were widely forecast to hit hardest the country’s exports in the second half.
The U.S. Department of Commerce launched a so-called Section 232 investigation in late May into the implications of car and auto parts imports to the U.S. national security. It can lead to the imposition of as high as 25 percent of tariffs on imported vehicles and car parts.
South Korean media outlets cautioned that U.S. President Donald Trump’s unilateral protectionist moves were feared to disrupt global trading order and ignite a global trade war as such protectionist moves expose U.S. companies to retaliations from foreign governments.
Citing the same Section 232 of the Trade Expansion Act, the Trump government levied tariffs of 25 percent on steel imports and 10 percent on aluminum imports, respectively, in March in the name of national security.
Of the 2.53 million car exports of South Korea in 2017, 845,000 vehicles were exported to the United States, taking up 33 percent of the total. The United States is South Korea’s second-biggest trading partner.
Foreign investors dumped South Korean stocks worth 2.8 billion U.S. dollars for the first five months of this year on worry about the U.S. protectionist moves that can lead to a trade war, according to the Bank of Korea (BOK) data.
Another risk facing the economy is a heavy dependence on a part of export items. Exports of semiconductors, oil products and petrochemicals accounted for 41.4 percent of the total first-half exports.
Higher exports of oil products and petrochemicals in the first were mainly attributable to expensive crude oil. If the crude price gets lower or global chip market worsens, South Korea’s exports could meet an abrupt downturn in the second half of this year.
During the first half, the export price advanced 5.9 percent compared with a year earlier, while the export volume edged up 0.7 percent.
Helped by the export, industrial production showed a stable picture, but facility investment kept a downward trend for three months through May. Retail sales, which reflect private consumption, fell 1 percent in May.
The composite consumer sentiment index (CCSI), which gauges outlook among consumers for economic conditions, dipped to 105.5 in June, the lowest since April last year.
Worsening the consumer spending outlook is the labor market situation. The number of those employed increased 72,000 in May from a year earlier, marking the lowest growth since January 2010. The job growth was 334,000 in January, but it hovered below 200,000 from February to April.
The government unveiled a supplementary budget worth 3.78 trillion won (3.38 billion U.S. dollars) in the first half to help create decent jobs, but it had yet to take effect. About 45 percent of the total extra budget had been spent by the end of June.
The government’s forecast for this year’s employment growth was 320,000, but major economic think tanks lowered their outlooks to around 200,000.
Adding to the concerns, inflationary pressures got stronger amid the higher crude oil price and the local currency’s descent to the U.S. dollar. It raises possibility for the central bank to raise its benchmark interest rate in the second half.
The BOK left its target rate unchanged since the bank lifted it to the current level of 1.5 percent in November last year, the first rate increase in almost six and a half years.
The U.S. Federal Reserve raised its benchmark rate by 25 basis points in June to a range of 1.75-2.00 percent, after lifting it by the same margin in March. It widened a gap between policy rates of South Korea and the United States.
South Korea’s consumer price inflation continued to rise from 1.0 percent in January to 1.4 percent in February and 1.6 percent in April. The producer price index, which heralds the headline inflation, advanced in May to the highest since October 2014.
If South Korea’s policy rate is raised as expected, debt-servicing burden for households would increase in the second half. Households had rushed to purchase new homes with borrowed money amid the protracted low-rate policy.
Unless the BOK lifts its target rate at an appropriate time, it can trigger an abrupt foreign capital outflow from the South Korean financial market as the Fed is forecast to increase its policy rate further later this year.