SEOUL: South Korea’s terms of trade continued to improve last month despite a large cut in exports as import prices dropped at a faster rate than export prices, central bank data showed Wednesday. The country’s terms of trade index spiked 12.4 percent on-year to 101.72 in October, according to preliminary data from the Bank of Korea (BOK).
The index gauges the amount of imports a country can purchase for each unit of exports, which shows how the country’s exports are doing in comparison with those of other countries. A reading above 100 means the country can purchase more for each unit it ships abroad.
The October reading marks the 14th consecutive month of on-year gain. It also marks a 0.2 percent increase from a revised 101.55 in the previous month. The rise, however, comes largely from a drop in imports, instead of an increase in exports or export prices.
The BOK said the price of South Korea’s imports plunged 23 percent on-year in October while that of exports slipped 13.4 percent. A cut in overall imports that outpaced a drop in exports further improved the country’s trade terms.
In October, the country’s overall imports plunged 16.6 percent on-year, outpacing a 15.8 percent fall in exports that marked the fastest rate of drop in over six years since August 2009, the trade ministry said earlier.
The large cuts in both import and export prices have been attributed to the low global oil prices as raw materials, including oil, account for nearly 40 percent of South Korea’s imports while petroleum and petrochemical products, such as gasoline or diesel that are by-products of processing imported oil, account for nearly one-fourth of exports.
With import prices dropping at a faster clip than export prices, the country’s income terms of trade index also improve significantly last month. The index, which measures the amount of imports that can be purchased or exchanged with the total value of exports, jumped 14.7 percent on-year to 146.30 in October, according to the BOK.
