In World Economy News 02/06/2015
South Korea’s exports fell the most in almost six years in May, underscoring concern that the slump in overseas sales is harming a recovery in Asia’s fourth-biggest economy.
Shipments slid 10.9 percent from a year earlier, the fifth straight monthly decline, the Ministry of Trade, Industry and Energy said on Monday. Imports fell 15.3 percent and the trade surplus was $6.32 billion.
Weak exports come amid increasing debate about the impact of the Korean won’s strength versus the yen and euro. This could prompt a rate cut by the Bank of Korea this month, according to analysts at Nomura Holdings Inc. and SG Securities Co.
“There are debates whether rate cuts affect exchange rates and export performance” Oh Suk Tae, a Seoul-based economist for SG Securities Co., said before the release. “But with domestic demand also just recovering, the BOK can’t just sit back.”
Central Bank Governor Lee Ju Yeol has said that while sluggishness in exports isn’t confined to Korea, the impact on the nation’s economy is large given its reliance on external markets.
A slowdown in global trade, fewer working days due to a public holiday in Korea and lower prices for petrochemical products contributed to the weaker data in May, the trade ministry said in a statement. The figures were in line with economists’ forecasts.
Overseas shipments should improve in June on car exports and higher prices for petrochemical products, said the ministry.
Won Strength
The won strengthened to more than a seven-year high against the yen in May, before trading at 8.96 versus the Japanese currency as of 10:51 a.m. in Seoul. The currency was at a nine-year high against the euro in April, data compiled by Bloomberg show. It’s weakened versus the dollar this year.
Korea International Trade Association said last week that more than half of 307 exporters surveyed by the group expect overseas sales to fall short of targets if the won stays around 9 versus the yen this year. Exporters can endure an average rate of 9.24, the Korea Chamber of Commerce and Industry said May 26.
The weak yen is worsening South Korea’s export situation as Japanese companies start lowering prices, Chang Min, the head of research for BOK in Seoul, said at a conference last week.
South Korean exporters are more dependent on China than are the Japanese, so a slowdown in Chinese demand has a bigger negative impact, Kwon Young Sun, a Hong Kong-based economist for Nomura, wrote in a May 28 report.
Of 27 analysts surveyed by Bloomberg during May 15-20, 12 expect another rate cut to 1.5% this year. Fourteen forecast no change, while one sees an increase to two percent.
