South Korea’s exports posted their biggest fall in three-and-a-half years in June, data showed yesterday, denting government hopes for a pick-up in economic growth after a shocking decline in the first quarter.
Exports by Asia’s fourth-largest economy plunged 13.5% in June from a year earlier, the trade ministry data showed, more than the 12% decline tipped in a Reuters poll and the fastest fall since January 2016.
The data is the first batch of trade figures released by a major exporting economy since US and Chinese leaders agreed over the weekend to restart their trade talks, which analysts say provided some relief for financial markets but is not expected to boost global trade.
“The outcome of the G20 (events) was better than expected, but that is somehow a political show, and what matters to the (local) economy is eventually the semiconductor sector,” said Oh Chang-sob, an economist at Korea Investment & Securities.
A plunge in the prices of memory chips amid a cooling global economy has hurt South Korean exports as semiconductor products account for 20.9% of the country’s total exports last year.
Exports in the second quarter fell 8.4% from a year earlier after an 8.5% drop in the first quarter, dashing the government’s expectations that the economy would rebound from a 0.4% decline in the first quarter.
A manufacturing survey from IHS Markit yesterday also showed South Korea’s factory activity shrank at the fastest pace in four months in June while export orders dropped for an 11th consecutive month.
The deputy head of the country’s central bank also shrugged off the China-US agreement to resume talks, saying it was “positive for the short-term but uncertainty is high for the medium- to long-term.”
Local financial markets have also showed a cautious response to the combination of events over the weekend, as investors were reluctant to change their bets that the Bank of Korea would eventually have to lower interest rates in the coming months.
“The Bank of Korea will likely cut rates in August and also trim its annual growth forecast,” said Park Sung-woo, an analyst at DB Financial Investment.
The finance ministry is due to announce its updated policy goals and growth forecasts later this week.
The BoK held the policy interest rates unchanged at 1.75% in its May meeting, but a majority of economists are now seeing the central bank cutting rates between July and August, in what would be the first easing in three years.
The central bank is due to review its policy on July 18.