South Korea yesterday posted a shock 6.6 percent annual drop in exports for last month and saw new export orders fall for a sixth consecutive month as the eurozone crisis and holidays hit, commencing a major election year on a gloomy note.
Inflation last month eased more than expected to a one year low of 3.4 percent in the wake of a fall in the price of fresh food, but looked poised to stay elevated on high oil prices and anticipated hikes in public utility charges, leaving the Bank of Korea with little room to ease policy to support the slowing economy.
Economists said the authorities, already known for their policy of keeping the won cheap, could try to bring the currency down to support exporters, but added the impact of any such efforts were likely to be limited.
“The won is expected to appreciate modestly, which will not seriously hurt the price competitiveness of exports,” Shinhan Investment Co chief economist Lee Sung-kwon said, referring to expectations that weakness in the US dollar would continue to prop up emerging market currencies.
Exports fell year-on-year for the first time since October 2009, with sharp declines in shipments to debt-stricken Europe as the continent slides toward recession.
The drop was more than the worst forecast from a Reuters poll of 11 analysts and compared with the median expectation for a 0.7 percent gain. The consumer price index rose less than a 3.6 percent median forecast from the poll.
The South Korean Ministry of Knowledge Economy said weaker demand from Europe, long holidays and a lagged effect from the shipbuilding industry’s slump from 2008 to 2009 have combined to drag exports down.
Exports to the EU fell 44.8 percent in the first 20 days of last month from a year earlier, it said.
With European demand fading fast, many export-reliant Asian economies are pinning their hopes on a recovery in consumption in the US and China to cushion the blow.
South Korean shipments to the US jumped 23.3 percent between Jan. 1 and Jan. 20, while those to China rose 7.3 percent.
Exports of completed ships plunged 41.5 percent, reflecting weak orders received two or three years back during the global financial crisis.
Shipments of mobile phones tumbled 39.7 percent, mainly after Samsung Electronics started assembling more of its handsets abroad.
An official at the ministry said the average value of exports per working day excluding ships, which he said eliminates calendar and ship factors, was US$1.71 billion last month, compared with US$1.64 billion a year earlier.
“We definitely see exports turning back to [year-on-year] growth in February,” South Korean Deputy Minister for Knowledge Economy Han Jin-hyun told reporters.
Adding to the gloom, manufacturing sector activity and new export orders both shrank for a sixth straight month last month, according to an HSBC/Markit survey of purchasing managers at South Korean manufacturing firms.
Still-elevated inflation at a time when Asia’s fourth-largest economy is weakening leave the country’s central bank with little room to change its interest rate policy for the next several months, analysts said.