Mike Bird, 03 May 2021
South Korea and Taiwan both reported better-than-expected economic growth last week, and in both cases it looks quite similar: Exports have boomed, domestic demand hasn’t. That has already caused some problems, which will be exacerbated if the trend continues unabated.
In South Korea’s case, exports of goods were 4.4% higher in the first quarter compared with the final quarter of 2019, before the pandemic hit. Meanwhile, private consumption spending is still languishing 5.5% below that benchmark.
It’s a similar story in Taiwan. Electronics exports in particular are up by 28.4% year-over-year, with net exports contributing far more to the overall 8.2% growth in gross domestic product than consumption.
For countries such as the U.S. and U.K., where large trade deficits are common, this might sound like a good problem to have. But imbalances in either direction can cause problems.
A large chunk of the problem comes down to the foreign-exchange market. Both Taipei and Seoul are loath to let the value of their currencies swell too high, which would pinch export competitiveness.