Business

Thursday August 2, 2012

S. Korea July exports, inflation dip


SEOUL: Exports in July suffered the worst showing in nearly three years and manufacturing activity shrank at its sharpest pace this year as South Korean’s export-reliant economy reeled from the effects of the eurozone crisis.

Yesterday’s disappointing data underscored how much more quickly Asia’s fourth-largest economy was losing momentum than had been expected, bolstering the case for another interest rate cut as early as next week, analysts said.

Exports in July fell 8.8% from a year earlier while inflation dived to more than a 12-year low of 1.5% as uncertain economic prospects hit demand and investment around the world.

The HSBC/Markit purchasing managers’ index (PMI) for South Korea’s manufacturing sector fell to a seasonally-adjusted 47.20 in July from 49.38 in June, setting the weakest in seven months and indicating a steepening decline for the sector.

Deputy Economy Minister Han Jinhyun told reporters exports in August would be able to post growth on a year-on-year basis but acknowledged their dependence on how the eurozone crisis and the global slowdown unfold.

Bond futures gained and stock prices fell as traders digested the policy implications from the weak data, while the won gained on speculation a possible further policy easing in the bigger economies could spur capital inflows.

“Tying up all the data together from yesterday and today, everything has become worse. We see another rate cut next week by 25 basis points,” said Park Sanghyun, chief economist at HI Investment & Securities, referring to the bleak data published on Tuesday.

<B>Gloomy:</B> South Korea’s manufacturing and exports fell in July as the economy is reeling from the effects of the eurozone crisis. – EPA Gloomy: South Korea’s manufacturing and exports fell in July as the economy is reeling from the effects of the eurozone crisis. – EPA

The weak export and manufacturing sector indicators also dashed hopes among policymakers that the local economy would turn to recovery from the current quarter, with domestic demand still in a deep slump.

South Korea’s top mortgage lender published separate data later in the day showing that housing prices across South Korea fell 0.1% in July from June, their first monthly fall in two years.

Falling home prices cut capital gains for home owners and hurt overall business activity in the property sector, which in turn would further squeeze household spending.

Yesterday’s data reinforced the market’s already growing view that policymakers would become more aggressive in trying to stop the local economy from slipping deeper into a slump, including a back-to-back cut in interest rates again next week.

Last month, the Bank of Korea unexpectedly cut its base rate for the first time in more than three years and the following day sharply lowered this year’s economic growth outlook, fuelling speculation that another rate cut was on the agenda for the central bank’s next policy review on Aug. 9.

The finance ministry has also flagged increasing downside risks to future economic growth and unveiled plans to increase public spending by more than US$7bil for the rest of this year to support growth. – Reuters

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