India’s exports to South Korea touched USD 6.4 billion in FY2024, says report

MUMBAI: Recovering from weak growth in 2023, South Korea’s economy is expected to improve gradually on the back of export growth, stable inflation, and easing interest rates in the coming years.

It was revealed by Rubix Data Sciences in it’s October 2024 edition of Rubix Country Insights report, which offers a comprehensive analysis of South Korea’s economic landscape with a special focus on South Korea-India trade relations.

The report stated that as trade between the two nations continues to expand, the report provides in-depth insights into the economic drivers and challenges shaping South Korea’s market. Despite challenges such as a rising trade deficit, ongoing discussions aim to reduce trade barriers and foster collaboration in sectors like electronics, petrochemicals, and automotive.

As trade between the two nations continues to expand, the report provides in-depth insights into the economic drivers and challenges shaping South Korea’s market. Despite challenges such as a rising trade deficit, ongoing discussions aim to reduce trade barriers and foster collaboration in sectors like electronics, petrochemicals, and automotive.

The surge in semiconductor demand during the pandemic led to a 4.3% GDP growth in 2021 but global overcapacity and geopolitical crises in 2022, combined with high inflation and other economic pressures, slowed South Korea’s GDP growth in 2022 and 2023.

A modest recovery of 2.5% is anticipated in 2024, driven by improved export growth, rebounding external demand, and stable inflation and interest rates. However, chances are the growth momentum might not be sustained because of high interest rates leading to reduced domestic demand and resulting in 2.2% growth in 2025.

Meanwhile, in October 2024, South Korea’s central bank, the Bank of Korea (BoK) cut its benchmark interest rates by 25 basis points to 3.25% after holding rates for nearly two years. It remains to be seen how much of a positive impact it will have on the economy.

South Korea’s economy is highly dependent on international trade, with exports accounting for nearly 40% of its GDP. Its major trade partners are China and the United States, with Electronic Integrated Circuits (EICs)/semiconductors and automobiles being the primary export products.

Overall, exports, crucial to South Korea’s export driven economy, fell by 7.5% y-o-y to USD 632 billion in 2023, marking the first decline since 2020. l In 2023, South Korea experienced a trade deficit for the second year in a row totalling nearly USD 10 billion, a decrease from USD 48 billion in 2022.

This deficit was primarily driven by diminished global demand, which was affected by higher interest rates in major economies. l Although China continued to be South Korea’s largest export destination in 2023, the gap between South Korea’s exports to China and those to the US narrowed to the smallest level in 19 years. This shift is partly due to weaker Chinese demand in 2023 and increased competition from domestic Chinese producers.

India is concerned about its growing trade deficit with South Korea, which has risen from USD 9.4 billion in FY2022 to USD 14.7 billion in FY2024. In response, while reviewing its Free Trade Agreement (FTA) with South Korea, India is seeking significant duty reductions on a wide array of exports, including agricultural products, textiles, pharmaceuticals, electronics, and petrochemicals, as well as increased market access for items such as steel, rice, and shrimp.

In May 2024, South Korea unveiled a 26 trillion Won (USD 19 billion) support package for its semiconductor industry to boost competitiveness under global market pressures. The plan, announced by President Yoon Suk Yeol, includes financial aid for infrastructure, Research and Development (R&D), and Small- and Medium-sized Enterprises (SMEs), along with tax incentives and investments in critical infrastructure to support the sector’s growth.

In the past year, with the objective of strengthening its global presence through alliances with trade partners, South Korea has embarked on a series of trade agreements with different countries, including the United Arab Emirates (UAE), New Zealand, and Thailand, and countries in Africa

Key Highlights from the Report:

• Economic Recovery: South Korea is forecasted to achieve a 2.5% GDP growth in 2024, driven by steady export growth and stabilized inflation rates.
• Semiconductor Industry Outlook: After facing a global overcapacity issue, South Korea’s semiconductor industry is bouncing back, marking a pivotal role in the nation’s economic revival.
• Trade Dynamics: While South Korea remains heavily dependent on trade with major partners like the U.S. and China, recent trends show a narrowing gap, signaling potential changes in global trade relationships.
• Sector Performance: The automotive sector saw a 32% surge in exports in 2023, hitting record levels, while semiconductor exports fell by 23.7%, showcasing the diverse dynamics within South Korea’s export industries.
• Challenges: The report identifies critical challenges, including South Korea’s aging population, growing competition from Chinese manufacturers, and geopolitical risks that could impact economic stability and trade.