South Korean exports battered by falling currencies, weak demand

[SEOUL] South Korean exporters look set for their worst performance in several years in the current quarter, with the euro's plunge to 11-year lows dealing an additional blow as China, their biggest market, cools and their rivals in Japan enjoy a revival.

Home to export powerhouses such as Samsung Electronics and Hyundai Motor, South Korea will release full January trade data on Feb 1, the first major exporting economy to do so.

The signs are not good for an economy that, with exports last year equivalent to 51 per cent of gross domestic product, is one of the world's most heavily reliant on trade.

Customs data released last week for the first 20 days of January showed South Korean exports fell 9 per cent in dollar value year-on-year. While the figures can be volatile, the calendar-adjusted daily average of US$1.7 billion was the worst since January 2010, according to HI Investment & Securities.

Park Sang-hyun, economist at HI Investment, said he was reviewing his 4.5 per cent growth forecast for first-quarter exports, measured in nominal dollar-value terms, for a possible revision down to zero or negative.

That would be the worst since late 2012.

An official at Hyundai Motor, which together with affiliate Kia Motors is the world's fifth-largest automaker, said falling currencies were having an impact. "It is a burden for us, for example, increasing the cost of marketing," said the official, declining to be identified.

The yen's weakening by more than one-third against the dollar since late 2012 has allowed Japanese firms to either cut sales prices abroad or offer fat benefits to customers.

Likewise, the euro has become super cheap after the European Central Bank embarked on its own quantitative easing this month, adopting the money printing strategy pioneered by Japan.

By contrast, the won has been one the strongest currencies among major trading economies over the past three years, up 57 per cent against the yen and 18 per cent against the euro.

Aside from won's loss of competitiveness, South Korean exports are facing other threats, ranging from weak demand in major markets to neighbouring China's industrial policy.

Tumbling oil prices amid slowing demand have also battered South Korean exports of oil products and petrochemicals, which account for one-fifth of overseas sales. In the fourth quarter these exports fell nearly 6 per cent year-on-year.

Apart from these price factors, China's long-term drive to to replace imported materials and components with local production is also accelerating just as demand growth there is slowing, analysts said. "South Korean exports are in their toughest phase in many years now, with almost no demand growth globally at the heart of the problem and price competition just getting tougher," said Young Sun Kwon, economist at Nomura in Hong Kong.

Kwon said Nomura's forecast that exports would drop 0.2 per cent in real terms year-on-year in the first quarter - which would be the worst performance since early 2009 - could be revised even lower.

REUTERS