South Korean exports last month plunged the most in almost four years, while consumer prices failed to rise for a third straight month, highlighting continued pain in this Asian bellwether for global trade.
China’s slowing economy and its trade dispute with the US have hit South Korean exports ranging from memory chips to petrochemicals, putting the economy on course for the slowest expansion in a decade.
Inflation at zero shows demand remains sluggish, despite fiscal stimulus and monetary easing.
Both exports and imports fell about 15 percent last month from a year earlier, pushed down by a slide in shipments to the world’s two biggest economies.
Consumer prices recovered from a 0.4 percent drop in September, but stalled price movements remains far below the Bank of Korea’s (BOK) 2 percent inflation target.
A recent uptick in semiconductor prices and a decline in inventories had offered glimmers of hope that the tech cycle might be bottoming out, which would spur South Korea’s export recovery. Yesterday’s data offered a setback to that optimism, with semiconductors shipment plunging 32 percent from a year earlier.
“It’s not a pretty picture, but we’ve seen a bad one for quite some time now,” said Moon Hong-cheol, a strategist at DB Financial Investment in Seoul. “There’s still anticipation that chips will rebound and if they do, we could start seeing exports falling by a single-digit number.”
South Korea is home to Samsung Electronics Co, a key link in the global supply chain. The economy ships everything from smartphones to memory chips, two major sources of income that have been among the hardest hit in the US-China conflict.
The steep cut in overall imports reflects private consumption still slumping in South Korea and dovetails with flagging inflation numbers, Moon said.
South Korean Minister of Finance Hong Nam-ki last month said that “vitality” in the private sector was the weakest since the global financial crisis.
South Korea’s economic growth slowed in the third quarter and the BOK has supported the economy with two interest rate cuts this year to 1.25 percent, matching a record low.
“The BOK will feel less pressure to cut rates with inflation coming out better than surveyed,” SK Securities economist An Young-jin said, still expecting the bank to lower its key interest rate early next year.
Economists surveyed by Bloomberg had expected a 0.3 percent slide in prices.
A full-fledged recovery for South Korea’s economy would depend not only on technology demand, but also on whether US President Donald Trump follows through with his willingness to strike a deal with China.
“Expectation is high for a deal between the US and China and if the improvement in relations continues, South Korean exports should rebound in the first quarter next year,” Korea International Trade Association researcher Mun Byung-ki said.
That steep fall in last month’s exports was partly statistical, given a 23 percent jump in shipments a year earlier, the most last year.
Exports to China last month dropped 17 percent, while those to the US fell 8.4 percent, South Korean Ministry of Trade, Industry and Energy data showed.
Shipments of petrochemicals fell 23 percent, but overseas sales of computers and vessels increased.
The pace of exports decline would gradually narrow from this month, the ministry said, citing an expected recovery in chip prices and a potential “phase 1” trade deal between the US and China among the reasons that would lead to an export expansion in the first quarter.
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