SEOUL, May 1: South Korean exports fell in April for the third time this year, hit by crisis-battered Europe and prompting the government to warn of a downgrade of its target for exports, the main engine of growth in Asia’s fourth-largest economy.
Exports shrank 4.7 percent in April from a year earlier, data from the Ministry of Knowledge Economy showed on Tuesday, a bigger drop than the 1.5 percent fall forecast in a Reuters survey and following a revised 1.4 percent decline in March.
The government’s projection for about 7 percent growth in exports for the whole of this year will now need to be lowered, a deputy minister told reporters, citing the euro zone crisis and a slowing Chinese economy.
Analysts said the depressed exports and separate data on Tuesday showing that inflation in April eased to a 21-month low, also short of forecasts, put pressure on South Korea’s policymakers to shift their focus further toward fostering growth and away from fighting consumer price rises.
South Korea’s economic growth has been lacklustre, at a 2.8 percent annual rate in the first quarter, while the central bank and private economists have lowered full-year forecasts as concerns mount over the uncertain global economic outlook.
TROUBLES IN EUROPE
‘We initially didn’t expect the EU fiscal crisis to deteriorate further and thought our exports to China would hold up even if economic growth there slows. But China’s exports are falling substantially,’ Deputy Minister Han Jin-hyun said.
‘Because of factors like the EU fiscal crisis, China and the base effect from (high exports to) Japan, we think (exports and the trade surplus) will be smaller than initially expected.’
The ministry has said overseas sales by the world’s seventh-largest exporter would increase to $595 billion this year from $555 billion in 2011, while the trade surplus would be $25 billion versus $31 billion last year.
Exports to the European Union fell 16.7 percent in the first 20 days of April from a year earlier, more than eclipsing small rises in exports to China and the United States. Those three markets account for 44 percent of South Korea’s exports.
Inflation in April eased for a second consecutive month to 2.5 percent on a year-on-year basis, the slowest pace since July 2010, led by farm products, although some costs for travel and private education rose.
‘Although the economy didn’t weaken sharply, momentum remains weak, and so there is an increased possibility that the Bank of Korea will prioritise growth over inflation,’ said Lee Sang-jae, chief economist at Hyundai Securities.
Still, he said the Bank of Korea, whose official rhetoric has until now put its policy priority on lowering inflation expectations, would likely adopt a wait-and-see stance for some time while assessing the global economy’s performance.
Financial markets in Seoul were closed on Tuesday for Labour Day.
The Bank of Korea has left the policy interest rate, its 7-day repurchase agreement rate, steady at 3.25 percent for 10 consecutive months after raising it by a total of 125 basis points between July 2010 and June 2011.
Its next policy review is on May 10 and the market consensus is that the central bank will stay on hold at least for the remainder of the year.
(AGENCIES)
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