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.