South Korea has been facing a trade deficit for almost a year due to its heavy dependence on China for imports and exports, which has been impacted by China’s economic slowdown and import slump. Between February 1 and 20, 2023, South Korea’s exports decreased by 2.3%, while imports increased by 9.3% YoY, resulting in a trade deficit of $5.987 billion. South Korea’s total trade deficit for 2022 was $47.2 billion, and it has recorded a trade deficit for 11 consecutive months. The root causes of the continuing trade deficit are “chips, China, and energy,” with the deteriorating business environment for semiconductors, the slowdown of the Chinese economy, and increasing energy imports being the main contributors. South Korea’s Deputy Prime Minister and Minister of Economy and Finance has pledged to improve the country’s export structure by promoting a multilateral market, reducing energy imports, and boosting the semiconductor industry. The South Korean government’s monthly report, “Recent Economic Trends,” for February acknowledged that the country’s economy had slowed down due to declining exports and shrinking consumption. South Korea’s economy contracted by 0.4% in the fourth quarter of 2022, inflation rose 5.2% YoY in January, and domestic demand faltered after January’s record-high trade deficit. The Bank of South Korea has frozen the benchmark interest rate at 3.5% while downgrading this year’s economic growth forecast from 1.7% to 1.6%.
South Korea has a year-long trade deficit due to reliance on China.
