Central bankers fretting about how bad 2019 might get should consider what is afoot in Seoul.
With its sizable, open and liquid economy, South Korea often proves a harbinger of global shifts. One may have arrived in the first week of this year: an abrupt about-face in trade.
On Jan. 1, the government shocked investors by reporting December exports declined 1.2% from a year earlier, missing estimates for an increase. Not a disaster, granted, but the devil in the details hints at deeper distress in the global economic system.
Encapsulated in this single data point is evidence of falling demand for cars, ships, memory chips, oil and other big tickets that drive international trade -- all collateral damage from U.S. President Donald Trump's trade war with Beijing.
Korea's fortunes often hang perilously between the U.S. and China, by far its biggest customers. Many intermediate components in computers, phones, Chinese home appliances, you name it, bear Korean logos.
The December downshift sheds light on why Apple a day later felt the need to telegraph financial pain ahead, and on Jan. 8 Samsung Electronics' issued profit warning. It also augurs poorly for other open economies caught in the U.S.-China crossfire, from Japan to Taiwan and Australia.
Nor do events in Seoul offer reassurances the trouble will pass. On the same day Samsung that warned of a 29% fall in October-December operating profit, President Moon Jae-in dropped his own shocker, firing his chief of staff and other key secretaries. The move smacked of trepidation about the outlook, as did Moon's recent embrace of the tycoons he once pledged to curtail.
At the moment, analysts polled by Focus Economics see South Korea growing 2.6% this year (versus about 2.8% in 2018). That looks overly optimistic given trade shifts, which revealed an 8.3% year-on-year plunge in semiconductor shipments in December. Living without 2018's 5.5% rise in export activity is easier said than done. The won's 5% rally against the dollar over the last 12 months makes Korea less competitive by the day.
That realization is driving a troubling about-face in Asia's fourth-biggest economy: Moon's priorities.
Moon, a former labor-rights activist, was elected in May 2017 to "democratize" an economy dominated by family-owned conglomerates stymieing competition. By mid-2018, the "jobs president" scored a key symbolic victory: a 10.9% hike in the minimum wage.
Symbolic, because that increase, to be implemented this year, only bumps average hourly pay up to $7.47. It was a mere down payment on Moon's promise to boost incomes, reduce an 8%-plus youth unemployment rate and halt the hollowing out of industry amid China's rise.
In a dramatic switch, Moon's administration is now dropping hints of delaying minimum-wage hikes, bowing to a backlash from business leaders. Worse, perhaps, the president is pivoting from wrestling power from oligarchic family dynasties to buttressing their "international competitiveness."
Koreans have seen this movie before, and it seldom ends well for working families. Moon's predecessor, Park Geun-hye had her own grand plans to take on the "chaebols" towering over the nation of 50 million people. Instead, she bowed to their supremacy when the economic going got tough. It is a script Moon too appears to be following, particularly as the external scene turns against Korea Inc.
That shift is upending the approach Moon took into 2018. Twelve months ago, Korea had a notable spring in its step amid 3%-plus growth and hefty corporate profits. In the waning days of 2017, the Bank of Korea even hiked rates by 25 basis points, the first major Asian monetary authority to do so since 2014.
Korea's role as a weather vane appeared to indicate other authorities would soon tap the brakes. Bank of Japan officials telegraphed an exit from history's most audacious monetary experiment. The People's Bank of China, meantime, began closing the credit spigot turned on high since the 2008 global crisis.
Yet the PBOC is again swinging back to easing mode. The BOJ is grappling with slowing growth, a surging yen and the return of deflationary dynamics it spent decades trying to eradicate. BOK Gov. Lee Ju-yeol faces his own headaches as Asia stumbles into 2019.
Along with slowing growth, Korea faces a near-record household debt burden that is limiting consumption. In fact, Seoul's ratio of household debt to gross domestic product rose at the second-fastest pace in the world in 2018. It stood at 96% at the end of the second quarter, compared to an average 48% among Group of 20 nations.
The bigger problem, though, is the global environment into which Korea's open economy is headed. Trump's threat to add a 25% tax on cars and auto parts on top of levies on $250 billion of Chinese goods is upending supply chains. His desire for a weaker dollar, meantime, is denting confidence among Korean manufacturers worried about lost market share.
And then there is the China question. Hopes Asia's main engine will grow 6.3% this year seem fanciful as Trump's tariffs collide with President Xi Jinping's efforts to reduce leverage at home. China's data on exports, fixed-asset investment and purchasing managers' orders demonstrate why Korea is in harm's way.
Mainland smartphone shipments fell between 12% and 15.5% last year, according to China Academy of Information and Communications Technology. Buzz that anti-Trump sentiment is driving Chinese consumers away from Apple does not tell the full story, if Samsung's travails are any guide. Sure, CEO Tim Cook erred by pricing Apple out of a Chinese market flooded with domestic rivals. But the broader chip scene faces a straight up demand shortfall amid slowing Chinese and U.S. growth.
China is a particular worry. The volume of Korean goods shipped there fell about 14% in December, a mirror image of the 15% surge in the same month in 2017. Already, Moon's government has unveiled a slew of stimulus measures, including tax cuts, to soften the blow.
But between the won's gains and China's downshift, Korea faces a dicey 2019. Trump's unpredictability, and the specter of a deepening of his trade war and a battle over currencies, makes it virtually impossible for Moon or Korean CEOs to how what is coming. And given the predictive powers events in Seoul often have for Asian peers, Korea will not be alone.
William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia, for his work for the Nikkei Asian Review.