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[Editorial] Falling exports

More business-friendly environment should be forged to fend off prolonged slowdown    

A continuous decline in exports has deepened concerns that the country’s economy will be trapped in a long-term slowdown. In recent years, exports have shored up Asia’s fourth-largest economy, which is losing growth momentum amid weak domestic consumption, sluggish investments and worsening unemployment.

South Korea’s exports fell 11.1 percent from a year prior to $39.5 billion in February, marking a third consecutive monthly drop, according to data released last week by the Ministry of Trade, Industry and Energy.

The double-digit decrease in outbound shipments, the first since July 2016, was attributed largely to the falling global prices of chips and the slowing Chinese economy.

The outbound shipment of semiconductors, which accounted for a fifth of the country’s exports last year, plunged 24.8 percent on-year to $6.7 billion in February.

Korea saw exports to China, its largest trading partner, contract 17.4 percent from a year earlier to $9.5 billion last month.

Trade officials expect exports to rebound in the second half of the year partly on the back of a recovery in global demand for chips and a rise in international oil prices.

As many experts note, however, there is the possibility that Korea’s exports will remain sluggish throughout the year and beyond amid a prolonged economic slowdown worldwide.

According to the Organization for Economic Cooperation and Development, the growth rates of the US and Chinese economies are projected to decelerate from 2.7 percent and 6.3 percent this year to 2.1 percent and 6 percent next year, respectively.

A possible extension of trade tensions between the world’s two largest economies would result in a further reduction in Korea’s exports.

The failure of US President Donald Trump and North Korean leader Kim Jong-un to reach a deal on the North’s denuclearization at their summit last week seems to have increased uncertainty over the outlook for a US-China trade accord.

At a press conference after he cut short talks with Kim in Hanoi, Trump warned he could walk away from a trade deal with China if it were not good enough, saying, “I’m never afraid to walk from a deal.”

The unimpressive export data for February came a day after the state statistics agency reported that the coincident and leading composite indexes of the Korean economy had fallen simultaneously for eight consecutive months in January. It marked the longest span of simultaneous decline in the two indexes, which gauge current and future business conditions, since they dropped together for eight months since July 1971.

In particular, seven of eight components of the leading composite index, including the ratio of job openings to job seekers, worsened in January compared to the previous month.

The sluggish economic conditions led the Bank of Korea last week to freeze its benchmark rate at 1.75 percent for three consecutive months since the rate was raised by 0.25 percentage point in November. The central bank has little room for lowering the rate, given rising household debt in the country and the possibility of major advanced economies returning to a tight monetary policy.

A continuous slump in exports is expected to further weigh on the economy, deepening worries that the economy will be entering an L-shaped long-term recession.

The country has seen exports of its key manufactured goods to major markets abroad decreasing at a steep pace.

In February, exports of 10 of its 13 major manufactured products contracted from a year earlier. The on-year decrease reached 46.5 percent for shipbuilding, 33.2 percent for computers, 15.3 percent for wireless telecoms equipment and 14.3 percent for petrochemical products.

The shipment of goods to China, the eurozone, Japan and the 10-member Association of Southeast Asian Nations dropped on-year last month, with exports to the US recording an increase.

On Monday, the government announced a set of measures to support exporters, including expanding state-guaranteed loans to them.

Such measures are insufficient to shore up manufacturing exporters. What is needed to increase the competitiveness of manufacturing and services sectors alike is to accelerate regulatory and labor reforms.

A set of pro-labor measures taken by President Moon Jae-in’s administration have imposed heavier burdens on companies. Corporate activity is set to be further restricted by proposed revisions to the commercial code and the fair trade act. The government’s failure to overcome objections from interest groups and politicians to regulatory reforms has held back the development of new industries.

The best way to boost exports and reinvigorate the economy would be to forge a more business-friendly environment, in which companies compete with each other without government interference.