South Korea exports slump, 2009 outlook gloomy
Reuters - 2 hours 44 minutes ago
By Yoo Choonsik
SEOUL, Jan 2 - South Korean exports and imports shrank more than expected in December as the global economic crisis shredded demand at home and abroad, and the government said exporters faced their toughest year since 2001.
Crumbling markets for Korean cars, ships and electronics and shrivelling domestic demand are piling pressure on the central bank to cut interest rates again to cushion an economy that analysts say may shrink in 2009 for the first time in a decade.
Other data on Friday showing the biggest monthly fall in house prices in Seoul in a decade and a slump in auto sales, pointed to the deterioration in the domestic economy.
The won <KRW=> tumbled 4.6 percent against the dollar, its biggest single-day fall in two months, as the weak export data persuaded traders to unload their holdings of the currency and take profits from a 13 percent rally since mid November.
The numbers reinforced the case for a rate cut next week of between 25 and 50 basis points from a record-low 3 percent, said Park Sang-hyun, chief economist at HI Investment & Securities.
"I expect the Bank of Korea to lower rates to 2 percent by the end of the first half, but we may see lower rates than that as the economy may post negative growth in the first quarter," Park said.
South Korean exports in December fell 17.4 percent over a year earlier while imports dropped 21.5 percent, hit by the deepening global recession and cooling domestic demand, the Ministry of Knowledge Economy said. [ID:nSEV000565]
Economists polled by Reuters had forecast a 16.4 percent drop in exports and a 19.1 percent decline in imports [ID:nSEO292369]
The data meant South Korea produced a $13 billion trade deficit in 2008, its biggest shortfall since 1996.
Separately, private-sector data showed housing prices in the country's capital Seoul fell in December from a month earlier by the most in 10 years. Nationally, prices fell 0.7 percent, the biggest monthly loss in five years, Kookmin Bank said. [ID:nSEO342877]
Auto makers said their domestic sales in the month fell almost a quarter from a year earlier. Overseas sales fell a more moderate 9.8 percent. [ID:nSEO327068]
The Bank of Korea meets next Friday to review policy, having slashed interest rates by 2.25 percentage points since early October to boost the economy and calm financial markets.
Korean stocks, bonds and the won were hammered last year as investors fled riskier assets after global financial crisis led to bank failures in the United States and pushed most industrial economies into recession.
The won's plunge on Friday came after dealers reported that South Korean authorities had dumped dollars in recent sessions to support the won as much as possible for the corporate year-end book-closing.
The Seoul stock market's benchmark KOSPI <.KS11> jumped 2.9 percent despite the bleak foreign trade and vehicle sales figures as investors bet the data would force policy makers to take more action in support of the economy.
The economy ministry offered a bleak outlook for the country's exporters, which include global names such as chipmaker Samsung Electronics <005930.KS> and automaker Hyundai Motor <005380.KS>.
It said exports would rise just 1 percent in 2009, the slowest pace in eight years. Imports would fall 4.7 percent, it said. [ID:nSEV000566]
A slump in imports as oil prices drop and export manufacturers reduce demand for materials will help South Korea turn the 2008 trade deficit into a $11.9 billion surplus in 2009, the ministry said.
South Korea sends more than one-fifth of total exports to China. Officials have said about half that number is re-exported to markets such as the United States, Europe and Japan which are all in recession.
The global economic slump has added urgency to the reform debate in South Korea. The ruling, conservative Grand National Party, says it wants to pass 85 bills that include easing rules on bank ownership to help the economy through the slowdown.
But dozens of reforms have been blocked because of squabbling politicians, prompting President Lee Myung-bak in his televised New Year address to urge the country's National Assembly to resume normal operations.
The Bank of Korea forecast South Korea's economy would grow 2 percent in 2009 from an estimated 3.6 percent in 2008.
But analysts at banks, including UBS, have warned the economy would probably shrink by as much as 3 percent in 2009, which would be the first annual contraction since the Asian financial crisis a decade ago.
The central bank governor said on Wednesday interest rate policy in 2009 would be aimed at supporting economic recovery and keeping financial markets stable. [ID:nSEO337127]
For a graphic on the export data click on
https://customers.reuters.com/d/graphics/KR_EXP0109.gif (Additional reporting by Cheon Jong-woo; Editing by Jonathan Hopfner and Dayan Candappa)
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