Top Line: The year ended on a conditional high for Korea.  Exports totalled more than US$60.7 bn for only the second time in Korea’s history, but imports reached an even bigger high at US$61.3 bn. By value total exports for 2021 increased 25.8%, but volume only by 5.9%.   Daily covid infections peaked on December 15 and appear to be steady or falling to the 4000 per day range by the beginning of January.  International achievements in December increased Korea’s status ranging from Netflix global record views, BTS in the US top 10, to having both Europe and US seeking industrial alliances. Industrial production for November and other data made November data look more lively than initial views a month ago, with mixed services demand.  Household loans slowed, house prices stabilized, and MOE stated that GHG emissions in 2019 were lower than 2018.

GDP growth of 4% or at least 3.9% seems attainable although 4Q is hard to call in constant price terms.  October was worse than any 3Q month, November appears to have been better than any Q3 month.  The jury is still out on December.

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But the terms of trade turned against Korea and the rise in prices given below shows that the achievement was partly an illusion as far as the real economy was concerned as inflation drove up the value of goods exported…   What does this mean? It means that the economy is in abnormal shape, and the export bubble could burst as the world economy comes back to normal. If energy prices stay high, then the current account moves to deficit. A housing bubble is also on the cards.

Exports: December reached US$60.7bn. Exports to China rose 20.8% (27.3% in November) and to SE Asia by 23.2% (32.7%.)  Exports to the US rose 22.9% (22%) and 17.1% (18.9%) to Europe.  For the year as a whole, the EU regained third place as destination, while Vietnam fell back to 4^th place. By category the top four items were Semiconductors rose 35.1%, Petrochemicals 34.3% and Machinery 6.2% and Automobiles 17.3 %.  In December these four categories took 43.8% of total exports. Imports were predominantly energy products which equalled 71% of the value of all imports.

Terms of Trade: – The fabulous achievements for exports are not quite so fabulous when we look at the net barter terms of trade.  BOK’s figures for November the first over US$60 bn export month are

• The export volume index increased by 5.9% and the import volume index increased by 7.0% year-on-year in November of 2021.
• The export value index increased by 27.1% and the import value increased by 42.8% year-on-year in November of 2021.
• The net barter terms of trade index decreased by 10.1% year-on-year in November of 2021.

Industry and Service economy in November: The Index of all industry production in November increased by 3.2 percent from October 2021 and the index of all industry production increased by 5.3 percent from the same period of the previous year.

• The Manufacturing Production Index increased by 5.3 percent from October and 6.2 percent from the same period of the previous year.
• The Index of Capacity Utilization Rate increased by 5.5 percent from October and 3.9 percent from the same period of the previous year.
• The Manufacturing Average Capacity Utilization Rate marked 75.1 percent, which increased by 4.0 percentage points from October 2021.
• The Index of Services increased by 2.0 percent from October 2021 and 5.3 percent from the same period of the previous year.
• The Retail Sales Index in November decreased by 1.9 percent October 2021 but increased by 4.6 percent from the same period of the previous year.
• The Equipment Investment Index increased by 10.9 percent from October 2021 and 9.2 percent from the same period of the previous year.
• The value of Domestic Machinery Orders Received increased by 25.0 percent from the same period of the previous year.
• The value of Construction Completed at constant prices increased by 2.4 percent from October 2021 but decreased by 5.6 percent from the same period of the previous year.
• The value of Construction Orders Received at current prices decreased by 12.5 percent from the same period of the previous year.

Preliminary Data for December: IHS Markits PMI for December gives a confusing commentary.  While the index rose from 50.9 in November to 51.9, the accompanying commentary said that overseas orders were falling, and the demand was increasingly domestic.  Supply chain issues were increasing rather than decreasing.  The assumption is that this will impact export performance in January and February 2022.  KERI also predicts the export growth rate will fall from 25.8 YoY % to around 3.2% in 2022.

Employment in Nov-Dec YoY: did not significantly increase despite living with Covid, even in food and accommodation

Inflation: Nothing is quite what is seems in terms of prices.  Inflation rose 3.7% YoY (the average for 2021 was 2.2%).  Excluding energy, food and cost of housing the increase was also 2.2% for November.

Presidential election:  Lee Jae-myung is now ahead of Yoon Seok-youl in all polls.  All polls except Realmeter show a substantial lead and Realmeter which has shown a pro-PPP bias in its sample now presents a 1.9% lead for Lee.  Ahn Chul-soo is registering about 9-10% as dissatisfaction with the two leading candidates in widespread.   Ahn will rise as Yoon falls but not to the point of overtaking Lee unless there is a serious upset, or a realignment with PPP.

Covid: Daily infections peaked on December 15, 2021, at over 7,000, and have fallen back to 4,000 after tougher measures of social distancing were introduced at the beginning of the month.  “Living with Covid” was therefore either dead or comatose for the month of December.  Critical patient numbers soared to over 1,000 but began to fall at the beginning of January.  Deaths continue to be five times the rate of earlier waves.  Omicron has only just begun to spread.

North Korea and the US: The wording of the declaration of the end of the war is almost agreed with the US (according to the Korean side.)  This wording is supposed to largely eliminate the impact or value of the declaration according to US sources.   Kim Jong Un’s quasi new year address indicated food shortages are the major concern of the North Korean government not the US.

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