SAMSUNG ECONOMIC RESEARCH INSTITUTE / Korea Economic Trends

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Korea Economic Trends Highlights

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Terms of Trade Worsen on Higher Commodities Prices Korean Economy Creates 536,000 Jobs in January NO.713, Feb. 20, 2012

Terms of Trade Worsen on Higher Commodities Prices Korea's terms of trade continued to worsen last year on steadily rising commodities prices. According to the Bank of Korea (BOK), the country's net barter terms of trade index tumbled 8.9% year-on-year to reach 76.6 in the fourth quarter of last year, the lowest in three years. The index measures imports purchased with a single unit of exports relative to the year 2005 baseline of 100. For the full year of 2011, the index fell 8.3% to 78.9. The series of falls in the trade index is because of the unit value of imports rising at a faster pace than that of exports. In the fourth quarter, Korea's import unit value spiked 17% mainly due to commodities and consumer goods. The import unit value of commodities jumped 21.7% with that of crude oil in particular surging 34.4%. That of consumer goods and capital goods rose 16.3% and 3.5%, respectively during the same period. <Click the image for a larger view> On the other hand, the export unit value gained just 6.7% year-on-year over the same period. Specifically, the export unit value of semiconductors plunged 40.9%, but that of oil products, automobiles and blasting agents rose 29.8%, 8.6% and 6.3%, respectively. For all of 2011, the country's export and import unit value indices advanced 8.5% and 18.4%, respectively.  The effect of worsened terms of trade can be offset by more exports. However, this was not the case in Korea in the fourth quarter of last year.  The country's income terms of trade index, measuring imports purchased with total exports with the 2005 baseline of 100, fell 3.7% year-on-year to 138.8. This marked the first drop since the first quarter of 2009 when the index lost 9.1% from the previous year. The index stood at 136.9 for the full year of 2011.  "Korea did not have a trade deficit in the fourth quarter of last year, but suffered real trade losses because imports that can be purchased with its total exports shrank," said Kim Young-Bae, director general of the central bank's economic statistics division. <Click the image for a larger view> With terms of trade continuing to deteriorate, a Ministry of Strategy and Finance official recently expressed concerns about February's trade balance. "We are closely watching (trade balance) updates, which are not favorable at the moment. We hope for a result slightly above the balance point, but the situation is not easy," he said. In January, Korea ran its first trade deficit in 24 months.   Korean Economy Creates 536,000 Jobs in January The Korean economy added jobs at the fastest pace in 20 months in January and the unemployment rate also went down from a year earlier. Statistics Korea said the economy added 536,000 new jobs in January from a year ago, higher than the increase of 441,000 jobs in December last year. January marked the fourth straight month that the year-on-year increase in jobs topped 400,000. The employment rate rose 0.6 percentage point year-on-year to 57.4%, through edging down 1.1 percentage points from a month earlier.  <Click the image for a larger view> The Ministry of Strategy and Finance said solid job growth in the service industry and rebounding construction job market boosted January's employment growth. The service industry hired 543,000 new employees from a year earlier, with the wholesale and retail sales sector adding 104,000 new workers and healthcare and social welfare services employing 86,000. Employment in the construction sector rose 86,000. However, manufacturing sector employment fell 114,000 due to a slowdown in exports, posting the sixth consecutive month of decline.  <Click the image for a larger view> The relatively fast pace of job growth was also partially due to a low base effect of January last year when cold weather and the spread of foot-and-mouth disease had pulled down employment in the agricultural, forestry and fisheries industry, the statistical agency said.  The agricultural, forestry and fisheries sector hired 36,000 new workers in January whereas it had lost 104,000 a year earlier. It is the first time that the sector saw an increase in jobs since May last year.  January also brought more elderly people into the job market. The number of employed in their 50s jumped 376,600 year-on-year and those in their 60s and over rose 213,000. In contrast, the number of employed in their 20s and 30s shrank 2,000 and 48,000, respectively.  The number of self-employed people jumped 190,000 year-on-year, also boosting January job growth. The statistics agency said the low base effect last year pushed up the number of self-employed people in the agricultural, forestry and fisheries sector this year. Among wage-earners, the number of regular workers increased 465,000 year-on-year while that of daily workers dropped 133,000. The number of unemployed fell 65,000 year-on-year to 853,000, registering a jobless rate of 3.5%. The unemployment rate was down from 3.8% a year earlier but up from 3% a month earlier. The jobless rate of people between 15 and 29 dropped 0.5 percentage point year-on-year to 8%, though up from 7.7% in December last year. The economy will continue to add jobs in February helped by favorable private-sector hiring conditions, the ministry said. But it also said February's job growth may be smaller than the 536,000 added in January due to a higher base effect a year earlier.

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