South Korean exports fall for 14th straight month in January
A container terminal in Incheon, South Korea. Reuters
Overseas sales tumbled 6.1% at the first month of 2020 from a year earlier, trade ministry data showed on Saturday, worse than a 5.2% drop in December but beating a median 7.8% decline tipped in a Reuters poll.
Average exports per working day, however, rose 4.8% on year, the first expansion in 14 months, when eliminating the calendar effect. There were only 21.5 working days in January, 2.5 days less than last year, due to changes in the Lunar New Year holiday.
South Korea’s exports are a closely watched bellwether for world trade as it is the first major exporting economy to release monthly foreign trade data.
Overseas sales of semiconductors, the country’s top export, accounting for one-fifth of its total exports, fell 3.4% year-on-year, logging the smallest decline in 14 months.
The novel coronavirus’ spread across China and the globe had cast a shadow over expectations Asia’s fourth largest economy was heading for a firmer footing. Disruptions from the virus are seen knocking economic growth in China and beyond, denting demand for Korean goods.
The trade ministry said January figures showed barely any impact from the virus, but shipments may be affected from February if risks from the virus threat lingers.
On Monday, the Chinese government has extended the week-long Lunar New Year holiday by three days to Feb.2 as it seeks to limit the spread of the coronavirus. The holiday, which began on Jan.24, had been due to end on Jan. 30.
“Though we see exports recovery momentum on improving export prices and chip sales, exports to China are likely to have a negative impact, depending on the extent of the virus spread and whether it lasts,” said Chun Kyu-yeon, an economist at Hana Financial Investment.
Exports to China, South Korea’s biggest trading partner, fell 10.5% year-on-year just a month after recording the first growth in 14 months in December.
The ministry said China-bound sales fell mainly due to the holiday comparisons, and that exports to China’s Hubei province, where the epidemic originated, accounts for only 0.3% of total exports, meaning the direct impact will be limited.
Imports fell 5.3% in January, better than a 6.9% contraction tipped in the survey and compared to a 4.6% fall in December. That brought the month’s trade balance to a $0.62 billion surplus, the smallest in seven years and compared to a $2.02 billion surplus a month earlier.
The trade figures came a day after data showed South Korea’s factory output surged sharply and exceeded forecasts in December, as soaring chip production fuelled industrial activity.
Meanwhile, South Korea’s central bank (CB) held key rates, citing strong economic recovery and housing bubble risk. Bank of Korea (BOK) kept its benchmark rate steady and struck an upbeat tone, considering signs of an improving trade environment and a resilient domestic backdrop that suggested policymakers are in no rush to lower borrowing costs again.
The country’s annual inflation hit a record-low last year but analysts are split on whether there would be further easing, not least because a deal signed by the United States and China on Wednesday could entrench a recovery in the Korean economy. The Bank of Korea’s policy board voted 5-2 to keep the base rate steady at 1.25%, as predicted by all 33 analysts surveyed by Reuters, standing pat for a second meeting following two reductions in July and October last year.
Analysts characterized the statement as less dovish than the previous one in November as it included a fresh clause highlighting better capital investment and concerns over surging home prices.
“The statement suggests policymakers are seeing a rebound in growth sentiment. It’s more hawkish than the previous one but doesn’t deviate too much,” said Paik Yoon-min, fixed-income analyst at Kyobo Securities, who sees one rate cut in 2020.
The March contract on 3-year treasury bond futures dropped after the statement was released but pared back as Governor Lee started speaking at a press conference. It was up 0.02 points from previous close to 110.31.
Governor Lee struck an optimist tone for the Korean economy for 2020, as “the US and China managed to make progress with the Phase 1 deal and as many institutions are seeing a recovery in semiconductor industry from mid- this year.”
Reuters
