South Korea suffers ‘triple minus’ in January amid negative export outlook due to US tariffs
South Korea’s economy faces pressure on multiple fronts ranging from industrial output and facility investment to the outlook for exports and consumer prices amid growing concerns about a global trade war.
The country’s industrial output, retail sales and facility investment all fell in January from a month earlier, data showed Tuesday. The figures marked the first “triple minus” since October, a signal that is widely perceived as a warning sign for the country’s real economy.
According to data released by Statistics Korea, industrial production tumbled 2.7 percent in January from the previous month, marking the steepest contraction in nearly five years, since the onset of the COVID-19 pandemic in February 2020.
The decline in industrial output reflected weaker production in major sectors from manufacturing to construction. Chip production climbed 20.8 percent on-month, but automobile production dropped 14.4 percent over the same period and output in the construction sector, closely watched by policymakers as an indicator of economic activity, recorded a ninth consecutive on-month decline.
Particularly concerning was facility investment, which suffered a sharp 14.2 percent drop last month, the worst performance since October 2020.
Retail sales, a gauge of private spending, showed no signs of recovery. Despite government efforts to stimulate tepid domestic demand by designating additional public holidays around the Lunar New Year, retail sales fell by 0.6 percent in January from a month earlier.
The outlook for exports, a pillar of South Korea’s economy, appears equally grim. According to a report released by the Korea Institute for International Economic Policy, an escalation in the global tariff war initiated by US President Donald Trump could shrink the country’s total exports by as much as $44.8 billion. Given that the country’s total exports amounted to $683.8 billion last year, such a scenario would wipe out approximately 6.6 percent of export revenue.
Exports could suffer more than expected largely because Trump is now expanding his tariff offensive from Canada, Mexico and China to other key allies, including South Korea. Addressing a joint session of Congress on Tuesday, Trump claimed that South Korea's average tariff is four times higher than that of the US, even though the two countries have been trading the vast majority of items duty-free under a bilateral free trade agreement.
“South Korea's average tariff is four times higher. Think of that ... four times higher, and we give so much help militarily and so many other ways to South Korea,” Trump said. This hostile remark suggests serious trouble for South Korean policymakers since Seoul has remained in a precarious leadership vacuum due to President Yoon Suk Yeol’s impeachment over his martial law decree last December.
South Korea’s macroeconomic indicators are also on shaky ground. The country's real gross domestic product grew 2 percent last year in line with the Bank of Korea’s estimate, but major institutions predict that the country’s GDP growth in the first quarter this year could stagnate at 0.2 percent from the previous quarter. This means that South Korea, already faced with weakening economic fundamentals, must also deal with a tough trade war.
On top of these challenges, South Korea’s consumer prices increased 2 percent from a year earlier last month, affected by the weakening of the Korean won against the US dollar, which drove up import costs, according to the data released by Statistics Korea on Thursday. The figure marked the second consecutive month in which the key gauge of inflation rose to the 2 percent level.
Given the strong economic and trade headwinds, policymakers must join forces with major parties and the business community to devise stronger policy measures to prop up the embattled Korean economy.
