South Korea Exports and Trade Deficit March 2008

South Korea's exports accelerated sharply in March on the back of rising shipments of oil products, cars and mobile phones to Asia and Latin America. Overseas shipments rose 19.1 percent from a year earlier, quickening from February's 18.8 percent gain, the economics ministry said in Gwacheon today.




Increased shipments to China and emerging markets have helped exporters to withstand faltering sales to the U.S., where the economy may be in a recession. Still, South Korean factory output fell in February and manufacturers' confidence for April deteriorated, reports showed yesterday, signaling companies expect demand may slow.

Commenting on the general situation in South East Asia, Vikram Nehru, the World Bank’s chief economist for east Asia and the Pacific (ie not including Japan and Australia), said on Tuesday the shift in export orientation was taking place faster than expected. “I didn’t expect such a rapid shift towards non-US markets as we are seeing,” he told the Financial Times yesterday "That is a sign of very adept marketing, as exchange rates and incentives change."

While annual export growth from emerging east Asian nations initially slowed from 22 per cent in January of last year to 15-16 per cent in the third quarter, it has since rebounded to 18-19 per cent.

The World Bank also said more sophisticated domestic production was allowing China to source more of its input needs internally.

“If this trend continues and if other east Asian economies are able to exploit these new opportunities in China’s domestic market then, over time, China is also likely to become an increasingly independent growth pole for the rest of east Asia,’’ the bank said.


Exports advanced to $36.2 billion in March and imports gained 25.9 percent to $36.9 billion, today's report showed. But Korea also posted a trade deficit of $668 million, the fourth consecutive shortfall. However, the March deficit was smaller than that in the first two months of 2008 as soaring oil prices reduced oil imports to 72 million barrels per day, down 10.8 percent from February. South Korea had previously enjoyed a monthly trade surplus for a number of years before starting to generate a deficit in December 2007.


Exports to China climbed 31.5 percent and sales to the European Union gained 21.4 percent in the 20-day period, outpacing a 10 percent increase in shipments to the U.S. China is South Korea's largest overseas market, buying 22 percent of exports. Manufacturing activity in China, the world's fastest-growing major economy, accelerated in March, a survey of purchasing managers showed recently.


South Korea's exports to central America and South America surged 49.6 percent in the first 20 days of last month from a year earlier, today's report showed. Shipments of oil products jumped 83.4 percent in the first 20 days of March and exports of mobile phones gained 48 percent. Exports of cars rose 28.5 percent in the 20-day period.


The Kospi index has dropped 10 percent and the won has fallen 5.8 percent this year on growing concern fallout from the U.S. housing recession and global credit-market slump will cool economic growth in coming quarters.

The 2008 trade surplus is likely to ``miss'' the government's target of $13 billion because of rising oil prices, Oh Jung Kyu, director general for trade and investment at the ministry told reporters in Gwacheon today. Import costs have increased as the price of Dubai crude oil, an Asian benchmark, surged 70 percent since the start of 2007. South Korea buys 97 percent of the fuel it needs from overseas.

South Korea Inflation March 2008

Consumer prices accelerated slightly in March even as industrial production, investment and consumption are weakening. According to the National Statistics Office (NSO), consumer prices rose 3.9 percent in March over March 2007, up from a 3.6 percent gain in February, as surging crude oil and other international raw material prices raised costs of goods and services in Korea.



Seasonally adjusted inflation rose 0.9 percent from a month earlier, the largest increase since January 2005 when the month-on-month inflation jumped 1 percent. The 3.9 percent year-on-year growth is above the Bank of Korea's target range of 2.5 percent to 3.5 percent. The government is committed to trying to contain rises in consumer prices to below 3.3 percent this year.

Consumers felt the inflation burden more heavily last month since the cost of living index, consisting of food and other daily necessities, increased at 4.9 percent from a year ago, according to the statistical office. Manufacturing goods were up 6.3 percent, reflecting a steep rise in raw material costs, while prices of agricultural, fisheries and livestock goods fell 1.3 percent.

According to the statistical office, industrial output grew 10.1 percent in February from a year earlier, down from an 11.3 percent gain in January. Growth was lower than the market consensus of 12 percent and seasonally adjusted production fell 0.2 percent from a month earlier. Retail sales expanded 3 percent from a year earlier, down from a 4.6 percent year-on-year gain the previous month, while corporate facility spending on machinery and telecommunications declined 1.9 percent and orders received by construction companies also fell 6.2 percent.

South Korea Industrial Output February 2008

South Korea's industrial production unexpectedly fell for the second time in three months in February, indicating economic growth may be cooling. Output declined 0.2 percent from January, when it jumped 2.5 percent, the National Statistical Office said today in Gwacheon.

According to the National Statistical Office (NSO) Monday, although industrial output fell month on month it still grew by a healthy 10.1 percent year on year rate in February on increasing production of semiconductors and audio and visual equipment. This compared with an 11.3 percent year on year gain in January.




Service output also increased at a slower rate of 5.9 percent in February from a year ago, down from a 6.8 percent growth the previous month. The finance and insurance sector saw output increase by 15.4 percent, but those of entertainment and sports-related sectors and educational service businesses fell by 3.4 percent and 3.3percent, respectively.

How Far May the Won Fall in 2008?

South Korea's won may fall considerably in the first half of 2008 as global credit-market losses lead overseas funds to sell holdings in Korean stocks according to a report out this week from State Street Global Markets.

The 3.1 percent drop so far this month in the Won's value vis a vis the dollar make it the world's worst currently performing major-exchange rate. Many economists consider that the decline will continue if the current-account deficit widens and the funds from stock sales continues.

Overseas investors have sold more Korean shares than they bought nearly every day this year on concern slowing global economic growth will damp demand for exports. Korea's won and the Indian rupee are the only two of Asia's 10 most-traded currencies outside of Japan that have weakened versus the dollar in 2008.



Cross-over equity flows, or purchases of stocks by overseas investors, into South Korea are the second weakest among the 29 developed and emerging-markets economies tracked by State Street Global Markets, the world's largest institutional money manager, and Korea's stock index has slipped 14.1 percent so far this year.

Korea's currency fell 1 percent this morning to 974.45 per dollar as of 1:41 p.m. local time, and this was the biggest decline since last August with the won reaching its lowest level since March 2006.


Korea's current-account is expected to run a $7 billion deficit this year according to the finance ministry yesterday, a figure which is twice the central bank's $3 billion forecast. Growth will fall short of 5 percent in 2008 and an earlier estimate of 6 percent because of slowing shipments abroad, Finance Minister Kang Man Soo said last week.

South Korea Central Bank Keeps Interest Rates Unchanged March 2008

South Korea's central bank kept its interest-rate policy unchanged for a seventh month today, citing increasing inflation pressures and the deteriorating global economic outlook.

Governor Lee Seong Tae set the seven-day repurchase rate at 5 percent.
The yield on South Korea's five-year government bond rose 4 basis points to 5.09 percent, reversing an earlier decline.

The won traded at 957.50 per dollar at close of onshore trading in Seoul, little changed from before the decision and posting its biggest weekly loss in seven months. The main Kospi index of shares slumped 2 percent to 1,663.97.



Consumer prices rose 3.9 percent in January from a year earlier, the fastest pace in more than three years. Inflation slowed to 3.6 percent in February. The Bank of Korea in December forecast consumer prices to rise 3.3 percent this year.


Export growth accelerated in February, rising by 20.2 percent, and industrial output increased 2.5 percent in January from December. Expanding demand from China, the Middle East and other emerging markets helped protect Korea's exports from the slowdown in several industrialized economies.

Other figures suggest growth may have peaked after gross domestic product expanded at the fastest annual pace in almost two years in the fourth quarter. Corporate investment fell, inventories rose, and a leading index weakened for a second month, the March 4 production report also showed. The Kospi index has plunged 12 percent this year.

The central bank, which expects prices to moderate in the second half, aims to keep inflation between 2.5 percent and 3.5 percent, on average, for the three years to 2009.

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.

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.