Exports to Continue to Increase in the Second Half of 2024
(Expect Increase Responses – 63.2%, Decrease – 36.8%)
• Industries with Highest Increase Responses –
Shipping (100.0%), Petrochemicals (75.0%), Bio Health (72.7%), Automotive Parts (70.0%), Electronics (68.3%)
• Export Profitability: Responses of “expect profitability to worsen” outnumbered “expect profitability to improve” responses
Similar: 50.0%, Worsen: 29.0%, Improve: 21.0%
* Industries with Highest Worsen Responses: Bio Health (45.5%), Petrochemicals (37.5%)
• Export Risks: ① Higher Raw Material Prices (29.0%), ② Slower Recovery in Global Demand (27.6%)
• Exchange Rates: Optimal Won/Dollar Exchange Rate: 1,332 won
If 1H exchange rate levels continue (Jan.-June 20 – avg. 1,347won) then lower profitability is inevitable
• Policy Support Needed: ① Stabilize Foreign Currency Market (19.6%) ② Tax Support for Raw Material Imports (17.9%)
More than half of large Korean companies believe that their exports1 will improve in the second half of this year year-on-year according to a new survey.
1 Exports Increase Rate (Korea Customs Service) : 3.1% (March) -> 13.8% (April) -> 11.5% (May) -> 8.5% (June 1-20, interim data)
Exports to continue to increase in the second half of 2024 (increase responses – 63.2%)
According to a Mono Research survey commissioned by The Federation of Korean Industries (FKI) of the top 1000 Korean companies (152 respondents) in the top 12 export industries2 , 63.2% of respondents believe that exports will increase in 2H this year YoY, with 36.8% forecasting a decrease.
2 Semiconductors, general machinery, automobiles, petrochemicals, steel, petroleum products, shipbuilding, automotive parts, displays, bio health, computers and telecommunication devices
Industries where at least half of respondents believed their exports would increase in 2H were shipping (100%), petrochemicals (75.0%), bio health (72.7%), automotive parts (70.0%), electronics3 (68.3%), general machinery (54.5%) and automobiles (50.0%). In comparison, the steel (46.2%) and petroleum products (0.0%) industries had more respondents who expected exports to decrease in 2H.
3 Electronics is the semiconductors, displays, computers and telecommunication devices sectors combined
Among the companies who responded they expect 2H exports to increase year-on-year, the main reasons given were “increased demand due to improvements in the industry” (35.4%), and “stronger product competitiveness due to new tech development, etc.” (15.6%). In comparison, the companies who responded that they expect 2H exports to decrease YoY cited “lower export competitiveness due to increases in raw materials prices and oil prices” (33.9%) and “sluggish economy in main export destinations including China” (25.0%).
Export profitability unlikely to be higher than 2H 2023
Among respondent countries, about 8 in 10 (79.0%) said that they expect their expect profitability4 to be similar in 2H YoY, or to worsen (29.0%). Only 21.0% of companies expect their export profitability to improve in the second half of their year.
4 Export profitability refers to the level of profits a company earns through exports. If profitability is good, a company can earn more profit from exporting the same amount of product. It is mostly determined by exchange rates and unit costs.
Bio Health and other industries profitability expected to worsen
In terms of the industries where more respondents said they expect export profitability to worsen than improve were petroleum products (100%, 0%), bio health (45.5%, 9.1%), petrochemicals (37.5%, 31.2%), electronics (29.3% 19.5%), steel (26.9%, 19.2%), and general machinery (18.2%, 9.1%).
Shipbuilding and other industries' profitability expected to improve
In comparison, the industries where more respondents said they expect it to improve rather than worsen were shipping (50.0%, 0.0%), automobiles (41.7%, 16.6%), and automotive parts (25.0%, 15.0%).
Reasons given for why export profitability was expected to worsen included “increased raw material prices such as for oil and minerals” (38.7%), “decreased export unit prices” (22.7%), and “increased costs due to higher exchange rates” (13.6%). Thus, raw material prices, export unit prices, and exchange rates were revealed as the main factors in why the outlook for export profitability is expected to worsen.
Biggest exports risk is higher raw material prices
When asked what the major risks are for exports in 2H 2024, the most common answers were “higher raw material unit prices” (29.0%), “delayed recovery in demand due to continued low global growth” (27.6%), and “the ongoing Russo-Ukrainian War and possibility of the Middle East conflict expanding” (15.1%).
In particular, as the instability in the Middle East has led to volatile oil prices, many companies said they are planning to put in place changes if the uncertainty surrounding oil prices remains throughout H2 2024, such as “reducing SG&A, operating expenses and other costs” (40.8%), “increasing product prices” (21.7%), and “diversifying supply chains” (20.4%).
Exchange rate of 1,332 won is optimal for export profitability
If exchange rates remain around the 1H average exchange rate (1,347 won), worsening export profitability is inevitable.
The average exchange rate for companies to secure export profitability in 2H2024 is 1,332 won. However, the average exchange rate of the won to the dollar (based on the BOK's trade reference rate) in 1H (January-June 20) was 1,347 won, and if this level of exchange rate continues in the second half of the year, it is expected to put pressure on companies' export profitability.
Dollar to Won Exchange Rate approaching 1,400 won
Hopes that the government will stabilize rates
When asked what policies they would like to see from the government to enhance export competitiveness, the most common answer were “measures to stabilize the foreign currency market” (19.6%), “tax support regarding raw material imports” (17.9%), “further tax support such as reduced company tax and investment tax deductions (17.5%), “support to prevent logistics delays” (13.2%) and “increase policy financing” (12.5%).
The FKI noted that as factors causing anxiety surrounding exchange rates such as the dollar to won exchange rate approaching 1,400 won (1,390 won on June 27), the U.S Fed delaying interest rate cuts, and the Japanese yen remaining weak, many companies are calling out for stability regarding the foreign currency market.
“While exports for our main exports like semiconductors are expected to continue to grow in 2H, factors like the sluggish economy in major export destinations like China and the United States 5 , instability surrounding exchange rates, intense competition in semiconductors, geopolitical risks and important elections around the world, mean a lot of uncertain remains,” said Sang-ho Lee, vice president of the FKI’s Economic and Industrial Research Department. “To improve the export competitiveness of Korean companies, we need to ensure we put in place laws and policies that are up to global standards.”
5 GDP Forecast (Bank of Korea, May 2024): U.S 1H: 3.0% 2H: 2.0%, China: 1H: 4.8% 2H: 4.5%
[Attached] Survey of Expert Prospects in 2H2024 Overview and Questionnaire
