ECONOMIC OUTLOOK FOR KOREA

26.01.2021, SEOUL,

KGCCI ECONOMIC OUTLOOK

Frank Robaschik

Director / Correspondent Korea

www.gtai.de

© GTAI 2

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© GTAI 4*) data for 1.1.2020-25.1.2021

Source: KDCA, Statistics Korea

Korea successful in fighting Covid-19

South Korea has

well managed the

COVID-19 outbreak

with low infection

rates and low

mortality rates.

The country starts

relatively late with

vaccinations.0

5

10

15

20

25

30

Newly infected in last 14 days per 100.000 inhabitants

0,00

0,00

0,01

0,15

0,24

0,29

2,58

4,59

5,38

7,51

0,00 5,00 10,00

Vietnam

Taiwan

China

Korea

Seoul

Japan

Germany

France

UK

USA

Total Covid-19 cases (in % of population)

*) data for 24.1.2021

Source: WHO, IMF

© GTAI 5

*) data until November 2020

Source: Statistics Korea

Korea – Manufacturing is back

Decline in Korea’s

manufacturing less

severe than than in

1997/98 or 2008/09

crisis.

But it started from

lower capacity

utilization rates.60

65

70

75

80

85

19

95

. 01

19

95

. 12

19

96

. 11

19

97

. 10

19

98

. 09

19

99

. 08

20

00

. 07

20

01

. 06

20

02

. 05

20

03

. 04

20

04

. 03

20

05

. 02

20

06

. 01

20

06

. 12

20

07

. 11

20

08

. 10

20

09

. 09

20

10

. 08

20

11

. 07

20

12

. 06

20

13

. 05

20

14

. 04

20

15

. 03

20

16

. 02

20

17

. 01

20

17

. 12

20

18

. 11

20

19

. 10

20

20

. 09

Capacity utilization in manufacturing (in %)Year *) rate

2013 76,4

2014 76,1

2015 74,5

2016 73,5

2017 73,7

2018 73,9

2019 73,1

2020 71,0

*) data until November

for each year

Source: Statistics Korea

© GTAI 6*) data for 1.1.-20.1.2021

Source: Korea Customs

Korea - Foreign trade is recovering

Exports recovered

from April lows

caused by COVID-19

lockdowns and

shutdowns in major

buyer nations.

So did imports.

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Changes in Foreign Trade (against same period of previous year)

exports imports

© GTAI 7

GDP forecasts by OECD and World Bank

Sources: OECD December 2020; for World, China, US: World Bank January 2021; for Germany 2020: Destatis January 2021; for Korea 2020: BOK

2020 2021 2022

China +2.0 +7.9 +5.2

South Korea -1.0 +2.8 +3.4

United States -3.6 +3.5 +3.3

Germany -5.0 +2.8 +3.3

Japan -5.3 +2.5 +2.3

France -9.1 +6.0 +3.3

United Kingdom -11.3 +4.2 +4.1

World -4.3 +4.0 +3.8

© GTAI 8

Germany’s trade - non-European partners

Source: Destatis

1-11/2020 Exports (Bill. Euro) Change

United States 94.690 -14.1 %

China 86.607 -1.2 %

South Korea 16.290 +2.9 %

Japan 15.851 -18.0 %

Mexico 10.257 -18.9 %

India 9.585 -9.3 %

Canada 8.661 -14,8 %

Australia 7.756 -9.1 %

Brazil 7.705 -18.1 %

Taiwan 7.523 +4.5 %

Korea became the second largest export market for German goods in Asia-Pacific in 2020.

For comparison: German exports worldwide -10.3%

© GTAI 9*) numbers for chemicals excluding pharmaceuticals

Source: KITA, calculations by Germany Trade & Invest

Korea - Imports from Germany in 2020

Korean imports from

Germany rise in

2020 despite the

coronavirus thanks

to sales of more

German cars.

15,4%

3,8%

4,1%

5,0%

5,4%

5,7%

11,1%18,0%

31,4%

Cars, car

parts +7.7%

Machinery

-2.3%

Pharmaceuticals

+6.9%

Electrical products

-4.1%

Electronics

+27.5%

Food, beverages,

tobacco +3.1%

Measuring, controlling

devices -2.9%

Chemicals

-5.3%

Others

+7.6%

Total 20.7 Billion US$, +3.7% against same period of previous year

© GTAI 10

Korean imports 2020

Source: KITA

in Billions US$ Change in %

Total 467.5 -7.1

China 108.9 +1.5

USA 57.9 -7.1

Japan 46.0 -3.3

Germany 20.7 +3.7

Vietnam 20.6 -2.3

Australia 18.7 -9.2

Taiwan 17.8 +13.5

Saudi Arabia 16.0 -26.8

The good data for imports

from Germany and the fall of

commodity prices like oil

made Germany the fourth

largest supplier to Korea in

2020.

© GTAI 11

Korean imports 2020

*) not listed here are major import goods such as metals, steel, electronics and electrical devices

Source: KITA

in Billions US$ Change

Total 467.5 -7.1

coal, oil and gas 86.6 -32.0

machinery 46.1 +15.0

chemicals 42.4 -4.5

food, beverages, tobacco 28.9 +0.6

textiles, clothing, shoes 18.6 -5.0

cars, car parts 18.1 +9.2

measuring equipment 10.2 +8.2

pharmaceuticals 8.6 +11.8

medical devices 4.4 +4.6

Korea paid significantly less

for raw materials in 2020.

Imports of machinery grew

with rising investment,

centered around

semiconductor equipment.

Imports of cars,

pharmaceuticals and medical

devices also rose.

© GTAI 12Source: BOK

GDP by industries in 2020

Manufacturing -1.0 %

slightly growing again in Q4.

Services -1.2%

still depressed because of

contact limitations.-8%

-6%

-4%

-2%

0%

2%

4%

Q1 Q2 Q3 Q4

real change in %

manufacturing services

© GTAI 13

GDP by industries in 2020

Source: BOK, calculations by Germany Trade & Invest

real change in % in the first three quarters of 2020

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

manufacturing

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

services

© GTAI 14

Labour market 2020 - changes

*) December 2020 compared to December 2019

Source: Statistics Korea

-10,0% -5,0% 0,0% 5,0% 10,0%

All ages

15-29

30-39

40-49

50-59

60-64

65-69

over 70

By age group

-15,0% -10,0% -5,0% 0,0% 5,0% 10,0%

Accomodation, Food Service

Wholesale, Retail Trade

Education

Manufacturing

All

Transportation and Storage

Healthcare, Social work

Public Sector

By industry

-12,1%

-7,5%

0,0%

-15,0% -10,0% -5,0% 0,0% 5,0%

Daily

Temporary

Regular

By type of worker

Employment -2.3%

Working hours per

employee -4.4%

© GTAI 15*) real data for GDP, nominal data for trade

Source: BOK; KITA; (p) preliminary, (f) forecast

Economic Development

Korea expected to

surpass pre-crisis GDP

level in 2021.

Exports might reach it,

perhaps also imports.

This is not expected,

however, for

consumption.

2,0 1,7

-7,5

-10,4

-6,0

-1,0

-5,0

6,8

-5,4

-7,1

3,0 3,14,3

6,05,4

-12,0

-10,0

-8,0

-6,0

-4,0

-2,0

0,0

2,0

4,0

6,0

8,0

GDP Privateconsumption

FacilitiesInvestment

Exports Imports

Growth Rates 2019, 2020, 2021

2019 2020 (p) 2021 (f)

© GTAI 16Sources: KITA, KERI

Export outlook for selected products 2021

Export growth expected for all

major product categories.

Above 2019: Semiconductors,

pharmaceuticals, batteries.

Around 2019: Ships.

Close to 2019: Cars, Car parts.

-20-15-10

-505

101520

Change against previous year in %

2020 2021

© GTAI 17Source: KITA

Pharmaceutical industry

2020 steep rise in rapid

antigen test kit exports

Long-term huge

investments in

biotechnology and

contract manufacturing,

e.g. Celltrion, Samsung

Biologics0

2

4

6

8

10

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Exports and imports of pharmaceuticals (billions of US$)

exports imports

© GTAI 18

Automobile industry

Sources: MOTIE, KAIDA, KAMA

2019 (in 1.000

units)

2020 (in 1.000

units)

change (in

%)

2021

Production 3,950 3,506 -11.2 3,860

Domestic Demand 1,780 1,886 5.8 1,820

domestic brands 1,518 1,594 5.1

imported brands 265 291 9.8

share of SUVs (in %) 44.6 47.6

hybrid, electric, hydrogen cars 143 227 58.7

Exports 2,400 1,887 -21.4 2,340

German brands increase number of automobiles sold in 2020 by more than a quarter

© GTAI 19Sources: MOTIE

Electricity generation

Focus in future power

plant construction on

solar, offshore wind and

LNG.

Goal of carbon

neutrality for whole

economy by 2050

declared in October

2020.0

5

10

15

20

25

30

35

Solar Wind LNG

Power plant capacity additions 2021 to 2034

© GTAI 20Sources: MOTIE, ICAK

Overseas constructionOrders up by 57% in 2020

Examples (in billions of US$):

Dos Bocas Refinery Mexico 3.6

Panama Metro Line 3 2.8

Al Faw Port, Iraq 2.6

Hawiyah Gas Storage, Saudi 1.85

Residue upgrading, Basrah, Iraq 1.8

T3, Dhaka International Airport 1.65

Refinery Hassi Messaoud, Algeria 1.6

Methanol Plant, Sarawak, Malaysia 1.1

North-South Railway, Philippines 1

Power Plan Fujairah, UAE 1

71,6

22,4

35,1

0

10

20

30

40

50

60

70

80

2005200620072008200920102011201220132014201520162017201820192020

Incoming Orders (billions of US$)

© GTAI 21Source: Statistics Korea

E-Commerce now 1/3 of retail sales

More than 20 per cent of

total retail sales from

mobile shopping.

Rapidly growing in 2020:

Food services and food

But also cars/car parts,

furniture, sports and

leisure appliances,

computers, books.

0%

5%

10%

15%

20%

25%

30%

35%

40%

2017 2018 2019 1-11/2020

Share of E-Commerce in Retail Sales

internet shopping mobile shopping

© GTAI 22

Selected Investment projects/developments• Samsung Electronics strengthening foundry (contract manufacturing) business

• SK Hynix buying memory chips production of Intel

• Hyundai Motor Group focus on alternative propulsion, robotics and mobility services:

new EVs, fuel cells, hydrogen cars / buying Boston Dynamics / unmanned air vehicles

bought St. Petersburg plant of GM in Russia + building car plant in Indonesia

• Samsung Biologics heavily expanding capacities for contract manufacturing

• SK Holdings buying 10 per cent of Plug Power (hydrogen fuel cells and fueling solutions)

• Hanwha Energy JV with Total in US for 1.6 GW solar and energy storage projects

• FTAs: Signing of RCEP in November 2020, Signing of CEPA with Indonesia in December 2020

• LG Energy Solution MOU on battery production in Indonesia, December 2020

© GTAI 23

Outlook for German suppliers in Korea

*) foodstuff excluding pork, import of which from Germany has been prohibited since September 2020.

Market potential 2021

Car parts +

Automobiles +

Pharmaceuticals +

Foodstuff + *)

Chemicals +

Electric equipment =

Machinery =

© GTAI 24

Selected Risks

- Further waves of Coronavirus infections (including mutated forms)

- Tensions between the US and China might lead to the need of separate supply chains

- High indebtedness of Korean private households

- Potential risks to banks, suppliers etc. if some countries or companies will be in financial

trouble

- Rising government debt

- Rising government debt levels and rising central bank assets worldwide

© GTAI 25

For more information

www.gtai.de/korea02-797-7442