Thursday, February 28, 2008

South Korea January 2008 Current Account Deficit

South Korea experienced its biggest monthly current account shortfall in almost 11 years in January and may have to enlarge its deficit forecast for the whole year, the central bank said on Thursday.

The seasonally adjusted current account deficit widened to a provisional $2.03bn in January, the biggest since a $2.21bn loss in February 1997, from a revised $1.07bn deficit in December 2007, the Bank of Korea data showed.

The deficit, which has been swollen by the rising cost of commodities imports just as exports started to slow, means foreign trade will contribute less than before to the economy at a time when the economic outlook is already turning from bad to worse.

In seperately released data we learnt today that companies were growing more worried about the immediate future, with the Korea Chamber of Commerce and Industry’s sentiment index for the second quarter hitting the lowest in more than a year. The chamber’s index, which fell to 97 for the second quarter from 99 for the first quarter, came hours after the central bank’s March survey index for manufacturing firms stood steady at a 9-month low of 86 set in February.

President Lee’s government has already pledged to lower corporate taxes, cut domestic sales taxes on oil products and roll back regulations to boost investment, but the effect will most likely be limited because key risks are from abroad.

The worsening current account performance is negative for the won, which has already been in gradual decline against the dollar since hitting a decade high at the end of October last year.

Yang Jae-ryong, who is head of the Bank of Korea’s international balance of payments team, told reporters that Korea’s current account deficit for 2008 could top the $3bn level previously forecast earlier by the central bank. If this happens it will be the first annual current account deficit in 11 years for South Korea, which has enjoyed a healthy current account performance helped by the won’s sharp drop during the 1997-98 financial crisis. This data comes one week before the central bank reviews interest rates on March 7. The Bank of Korea held rates steady at 5.0 per cent on Feb. 13 for a sixth consecutive month but said it could cut the rates whenever necessary.

Friday, February 1, 2008

South Korea Inflation January 2008

South Korea's inflation accelerated in January to its haighest level in more than three years as costs of industrial goods and fuel rose following a surge in crude oil prices. The consumer price index rose at an annual 3.9 percent rate, as compared with a 3.6 percent increase in December according to data released by the statistics office today. The increase was the largest since September 2004. month on month prices were up 0.5 percent in January from December.

Bank of Korea Governor Lee Seong Tae said recently that inflation is expected to accelerate even as the risk of a U.S. recession increases.

According to the central bank half yearly economic outloook released in December consumer price inflation is expected to accelerate to 3.3 percent in 2008 from 2.5 percent in 2007. The central bank aims to keep inflation between 2.5 percent to 3.5 percent target range.

The central bank's policy board members next meet on Feb. 13 to decide on interest rates. In January the bank kept the overnight call rate unchanged for a fifth month at a six-year high of 5 percent, after back-to-back increases in July and August.

Core consumer prices, which exclude oil and other volatile items, rose 0.6 percent from December, and core prices were up 2.8 percent from January 2007.

Industrial goods prices rose 0.7 percent from December, boosted by a 1.8 percent gain in oil product costs, while the cost of agricultural, dairy and fisheries goods rose 0.2 percent over the month.

S Korea Trade Deficit Hits 11-year High

South Korean exports in January grew more than expected in spite of a slowing US economy but firmer oil prices pumped the trade deficit up to the biggest in 11 years, data showed on Friday, dealing a blow to the won. Exports jumped 17.0 per cent led by oil products, flat-screen panels, machinery and mobile phone handsets, the Commerce Ministry data showed.

But a larger 31.5 per cent rise in imports – led by crude oil and topping market expectations for a 24.5 per cent gain – pushed the trade deficit up to its widest since early 1997, forcing the won to give up gains and weaken against the dollar.

South Korea’s longstanding efforts to diversify its export markets away from the US into emerging economies had been helping Korea maintain strong sales abroad until now, despite growing troubles in the US economy.

Exports in January amounted to a provisional $32.86bn on a customs-clearance basis and imports totalled $36.24bn, generating a deficit of $3.38bn, the data showed.

The import growth was at its fastest pace since a 33.8 percent annual gain in August 2004 and the trade deficit was its biggest since a $3.48bn gap in January 1997. The price of Dubai crude oil, South Korea's benchmark, jumped 53 percent since the beginning of last year. South Korea purchases 97 percent of its energy needs from overseas.

The won was trading at 944.1/8 per dollar at 0134 GMT, turning weaker from an earlier rise to as high as 941.6. South Korea is the region’s first major economy to release monthly trade data each month, making the country’s trade figures an important clue on the latest state of global demand.

Exports to China, the country's largest market, gained 5 percent in the first 20 days of last month while exports to the European Union jumped 36.1 percent. Shipments to the U.S., the second largest, rose 3.3 percent and exports to Russia climbed 21 percent, today's report showed. South Korea sends two-fifths of its total exports to China and the US, while electronics goods and cars account for about 45 per cent of the total exports in value.

China's economy, the destination of about a fifth of South Korea's shipments, expanded more than 11 percent in each of the past four quarters. By contrast, U.S. gross domestic product slowed to an annual rate of 0.6 percent in the fourth quarter from 4.9 percent in the previous three months.

The trade data came hours before the South Korean government is due to release January consumer inflation data. Both sets of numbers will provide an important feed into the Bank of Korea’s interest rate review on Feb 13.