Seoul's export slump deepens as CNY break hits shipments

[SEOUL] Declines in South Korean exports widened in January despite signs of green shoots in global trade as the Lunar New Year holiday reduced the number of working days at month's end.

Exports fell 6.1 per cent from a year earlier, following a 5.2 per cent drop in December, trade ministry data showed Saturday.

Economists had forecast an 8.6 per cent decline. Shipments of semiconductors, the country's biggest export, slid 3.4 per cent, the smallest decrease since December 2018.

On its face, Saturday's poor trade report appears to contradict recent signs of a manufacturing rebound, but the Chinese New Year break is making the numbers look worse than the reality. The holiday was in late January this year after occurring in February in 2019, cutting the business calendar by 2.5 days and skewing year-on-year comparisons.

South Korea is a barometer of global trade as the world's biggest source of memory chips, which go into everything from computers to smartphones.

The Bank of Korea (BOK) stood pat on policy in January after cutting rates twice last year. The economy grew 2 per cent in 2019, the slowest pace since the global financial crisis, but showed better momentum in the fourth quarter. The BOK forecasts 2.3 per cent growth this year.

The government plans to front-load its spending this year to speed up an economic recovery.

China's viral outbreak has the potential to partly slow the momentum that the US-China trade deal offers for South Korea's economic recovery, according to economists including Oh Jae Young at KB Securities.

The virus threatens to bring China's economic growth to below 5 per cent this year, undermining domestic consumption, said Seo Jeong Hun, an analyst at KEB Hana Bank. "That could hurt South Korea's chip exports, too," he said.

Other risks remain for South Korea this year. Its trade spat with Japan hasn't been fully resolved and trade tensions between the US and China could flare up again. Inflation remains well below the BOK's 2 per cent target.

BLOOMBERG