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Economy in Brief

 South Korea Trade in Goods:  Small Deficit in Won Terms in June, Terms of Trade Continue Unfavorable 
by Louise Curley July 24, 2006

Earlier this month South Korea reported a seasonally adjusted deficit on foreign trade of 1.94 billion won in June compared with a surplus of 1,505 billion won in May. This was the first deficit since March, 2003 and was the result of a decline of 817 billion won in exports and an increase of 816 billion won in imports. Incidentally, in US dollar terms, there was a surplus of $3.78 million. This illustrates the point that one can't simply multiply the won value by the Won/Dollar rate to determine the value of the balance of trade in dollars. The correct procedure is first, to convert the won exports and imports into dollars and then the difference between the two is computed. In determining the dollar value of individual exports and imports, different exchange rates may be used depending on the timing of the exports or the imports. The difference between applying an average exchange rate to the won balance of trade and the more involved procedure is not great, but enough to turn a small deficit in won into a small surplus in dollars. In the first chart we show Korea's balance of trade in USD as reported by the Bank of Korea and the balance of trade computed by multiplying the Won value by the average exchange rate.

Details of the composition of exports and imports and export and import prices for June were released today. Trade by country for June is yet to be published. The biggest increase among imports of commodities was crude material including inedible, ex fuel, which increased 351 billion Won in June. Surprisingly, the category including fuel, which has seen dramatic price increases, declined 45 billion Won in June but this decline followed a peak increase of 1,724 billion Won in May. The biggest decline among exports was in machinery and transport, which declined 705 billion Won in June. The month to month changes in the import of crude material including inedible, ex fuel and the export of machinery and transport are shown in the second chart.

Since mid 2005, the spread between import and export prices, shown in the third chart, has been widening, with import prices rising, while export prices have tended to decline. As a result, the terms of trade for Korea have worsened steadily.

South  Korea Jun  06 May 06 Jun 05 M/M Dif Y/Y Dif  2005 2004 2003
Exports (Bil Won)  25810 26626 26753 -816 2057 291579 290419 230914
Imports (Bil Won) 25911 25123 23752 688 3489 267443 256741 213175
Balance (Bil Won) -1.94 1503.25 1399.90 -1505.18 -1401.94 24135 33678 17739
Exports  (Mil USD) 26953 28279 23369 -1326 3584 284617 253845 193817
Imports (Mil USD) 26950 26646 21998 304 4952 261091 224462 178827
Balance (Mil USD) 3.78 1634 1372 -1630 -1368 23526 29392 14990
Import: Crude Material, inedible ex fuels (Mil USD)  1718 1368 1377 350.97 341.44 15354 13535 10147
Export: Machinery & Transport (Mil USD) 16085 16790 14024 -705.10 2060.81 173492 159994 121142
Terms of Trade (2000=100) 71.85 71.50 72.43 0.49* -7.21* 77.56 85.34 88.85
Export Prices (2000=100)  87.45 85.16 86.32 2.69* 1.61* 86.74 92.93 87.51
Import Prices (2000=100 121.72 119.10 111.48 2.20* 9.19* 112.03 108.89 98.85
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