SEOUL (Reuters) – South Korea’s exports likely contracted in October, falling for an 11th straight month, pressured by weak sales to China and sluggish global demand for semiconductors.
Economists expect the decline to bottom out as favorable base effects will likely kick in starting from November.
October shipments were seen slumping 13.8% from a year earlier, according to the median forecast of 15 economists polled, nearly matching the worst decline in 3-1/2 years in August, when exports fell a revised 13.9%.
The projected October fall would be a fifth month of double-digit percentage decline for the export-reliant economy.
In October 2018, exports surged 22.5% mainly driven by the traditional three-day Chuseok holidays.
“Sustained weakness in semiconductor exports seen after the release of the interim figures is worrisome given that base effects helped semiconductors turn positive in October,” said Oh Suk-tae, economist at Societe Generale.
Oh said favorable base effects on overall exports should kick in from November, adding “we will carefully monitor whether there are any signs of true recovery in exports”.
Preliminary data showed South Korea’s exports plunged 19.5% over the first 20 days of October from a year earlier, with chip sales diving 28.8% and sales to China falling 20.0%.
South Korea’s economic growth slowed more than expected in the third quarter due to a slump in domestic spending and global trade headwinds, but exports signaled some signs of recovery.
The world’s sixth-largest exporter has been one of the worst-hit economies in the wake of a prolonged U.S.-China trade war and as global demand continues to cool, dampening business confidence and investment.
While the leaders of the world’s two biggest economies are working to agree on the text for a “Phase 1” trade agreement, U.S. President Donald Trump said on Monday he expected to sign a significant part of the trade deal with China ahead of schedule without elaborating on the details.
But economists are still skeptical about a recovery as external conditions remain challenging.
“Though U.S.-China trade tensions are seen easing lately, the global manufacturing industry and external demand remain weak due to the mounting impact from tariffs,” Ahn So-eun, economist at IBK Securities.
Economists also forecast that South Korea’s consumer prices would be negative for a second month, easing a median 0.3% in October, slightly better than last month’s 0.4% fall, the first negative reading since data began in 1965.
Earlier this month, the Bank of Korea trimmed its policy interest rate KROCRT=ECI for the second time in three months to 1.25%, matching a record low.
A state-run think tank said on Monday the central bank should focus more on meeting its inflation target than on financial stability, hinting that more rate cuts would be needed to lift falling prices.
The Reuters poll also sees industrial output in September rising by a seasonally adjusted 0.6% from a month earlier.
September industrial output data is due at 8 a.m. on Thursday (2300 GMT Wednesday).
October trade data will be published at 9 a.m. on Friday (0000 GMT) while inflation figures are expected an hour earlier (2300 GMT Thursday).
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