The world's economic 'canary in the coal mine' flopped again

The world’s economic “canary in the coal mine” flopped again.

South Korean exports, nicknamed the “world’s economic canary in the coal mine,” fell by 6.0% in May from a year earlier, according to Korea’s latest export data.

This is the 17th consecutive month that exports have dropped.

And, although the data was an improvement from the 11.2% drop in April, it was far below the 0.4% dip economists were expecting.

Korean exports are often referred to as the “world’s economic canary in the coal mine” by economists because 1) of their heavy exposure to the US, China, and Japan — some of the world’s biggest economies, and 2) the data comes out on the first day of each month.

As such, they generally give a good taste of what’s been happening in global trade activity in the month prior.

Notably, a Morgan Stanley team led by Deyi Tan argued that the latest reading on Korean exports actually “saw some signs of stabilisation in May at low levels, suggesting similar read-across for global trade activity.”

Last month,
Deutsche Bank senior economist Juliana Lee argued that South Korean exports face two major long-term problems: China’s rise in industrial sophistication and increasing labour costs combined with falling export prices.

“Needless to say, the combination of falling earnings and rising input costs bodes ill for Korea’s manufacturing — it is simply unsustainable, especially given China’s rising industrial sophistication,” she wrote in a note to clients.

“They clearly point to Korea’s need to improve its economic flexibility/adaptability to a changing global environment, to avoid a rather disruptive consolidation.”

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