The Global Economic 'Canary In The Coal Mine' Is Gasping For Air


Photo: Wikimedia Commons

South Korean exports is widely recognised as the most reliable leading global economic indicator. It’s a favourite of Jim O’Neill. Goldman Sachs and UBS both literally refer to it as a “canary in the coalmine” for the economy.

We recently learned that South Korean exports plunged 8.8 per cent in July, which was much worse than the 3.7 per cent decline expected by economists.

From UBS economist Duncan Wooldridge:

Our Canary is Breathing Heavily
We’ve often referred to Korea as a canary in the coal mine for the global economy. Korean exports typically come out on the 1st of every month. They are heavily geared toward China, the US, and Europe and thus are a good barometer of global manufacturing momentum. On that basis, the July figures just released yesterday offer little comfort. In fact, they suggest the global trade cycle is worsening, not improving. In nominal terms Korean exports fell 9%y/y and were down 3.8%m/m seasonally adjusted. On a volume basis we estimate Korean exports fell 3%y/y and dropped 2.8%m/m seasonally adjusted. This marks a significant deceleration in what was an already weak first half of the year. Why is it happening? Your author’s opinion has been that the US fiscal cliff debate, coupled with continued concerns over Europe, and only a modest stimulus from China would ultimately lead to some disappointing numbers. Unfortunately, it’s hard to see how we get a significant turn around if it all comes down to China adding a bit more infrastructure investment in the second half of the year. It’s just not a game changer. So we wouldn’t be surprised to see more disappointing export numbers in the months ahead. Sigh.

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