South Korean exports fell for an 18th straight month in June, and though they declined by the slowest pace in a year, the potential impact on world growth after Britain’s messy divorce from the EU has analysts and policymakers urging caution over the outlook.
The external risks have already prompted Seoul to unveil an $8.7bn extra budget as Asia’s fourth-largest economy struggles to pick up momentum in the face of weak exports and consumption.
Shipments from the world’s sixth-largest exporter fell 2.7% in June on-year to $45.3bn, the smallest decline since June last year, data from the Ministry of Trade, Industry and Energy showed yesterday.
Exports of three offshore plants mainly contributed to the improvement, along with computer parts for offshore production.
In June, ship and computer-related exports jumped 29.6% and 19.8% in annual terms, respectively.
“It’s premature to be too optimistic right now as global uncertainties will persist in the wake of the Brexit vote.
I doubt exports will turn positive by year-end,” said Park Ok-hee, an economist at IBK Securities in Seoul. “China may see momentum softening in the second half of the year, so this may just be temporary,” she added.
Britain’s vote last week to leave the European Union sparked a two-day selloff in global markets, and despite a semblance of calm in the past few days analysts and policymakers are worried about the longer term impact of Brexit on the global economy.
The trade ministry said it expects exports to improve further this year, but Brexit-related issues remain a downside risk to trade.
“There are still so many uncertainties (from Brexit) it’s difficult to say when exports will embark on a firm rebound,” said Cheong Seung-il, deputy minister at the trade ministry in a
briefing.
South Korea’s exports to key markets of China, the US and the EU all fell in June, suggesting strong headwinds as the country is the first major exporter in the world to publish trade numbers each month.
Exports to China suffered on lagging production of semiconductors and flat panel displays while those to the US fell on machinery and oil-related products, the data showed. South Korea’s imports dropped 8% to $33.7bn last month, producing a record trade surplus of $11.6bn.
The Bank of Korea last month unexpectedly cut interest rates for the eighth time in its current easing cycle to bring the base rate to a record low 1.25%, and some analysts see another cut in coming months to spur growth.
The BoK is also expected to trim its GDP growth forecast of 2.8% for 2016 at a quarterly review in July. Earlier yesterday, data showed consumer prices rose 0.8% in June on-year, steady from May.