Trade terms worsening in second quarter

During the past second quarter in April to June, the terms of trade for Korea greatly deteriorated due to unit cost drops.

According to the Bank of Korea, the net terms of trade, which indicate how import compare to export volumes, have been aggravated by 9.6% over the same period last year, as the average export unit price dipped 13.9% against the average unit import price decline of only 4.8%.

Unit export prices fell 12.2% during the entire first half this year, while unit import prices only decreased by 4.4%, worsening the terms of trade by 8.2%.

The BOK revealed that since unit export prices began to decline in the fourth quarter last year, the trend has only accelerated. Excluding semi-conductors and information technology products, unit export prices only fell by 4.6% in the second quarter, showing that for other industries the price disparity is not nearly as severe.

In terms of quantity, exports increased by a mere 3.3% over the second quarter last year because light industry items were less and less in demand while heavy industries items also showed a sluggish 10.9% increase. These increases are the lowest since the first quarter of 1999, 1.6%.

Related with import cargoes, though consumer goods increased a little, total import amounts declined 7.9% from 2000 in the wake of raw material and capital goods decreases due to shrinking domestic demand and lethargic exports. This is the first decrease for imports since the fourth quarter of 1999, when imports fell 15%.

Especially, machinery and information & telecommunications equipment declines gave rise to a gloomy future for exports, showing a 15% reduction. The bank said that the income terms of trade, which means the amount that can be imported as balanced against exports, deteriorated 6.6% compared to a year ago.