South Korea Exports Fall 0.4% in May for Third Monthly Drop

South Korea’s exports declined for a third month in May, adding pressure on the central bank to hold off from raising interest rates at a meeting next week.

Overseas sales fell 0.4 percent in May from a year earlier, after a revised 4.8 percent decline in April, the Ministry of Knowledge Economy said in a statement today. The median estimate in a Bloomberg News survey of 14 economists was for a 1.1 percent drop. A separate report showed today that inflation held at a 21-month low of 2.5 percent in May.

South Korean officials are trying to sustain momentum in Asia’s fourth-biggest economy after the fastest growth in a year in the first quarter. A slowdown in China and the risk of a Greek exit from the euro region are clouding the outlook for exports, which are equivalent to about half of gross domestic product.

“Export growth will likely remain sluggish, as weak demand from Europe partially offsets the upturn in the tech cycle,” said Wai Ho Leong, a senior regional economist at Barclays Capital in Singapore, referring to technology-related industries such as semiconductor chips.

The won fell 4.3 percent in May for the biggest monthly loss since September and was little changed at 1,180.85 per dollar at 9:41 a.m. in Seoul, according to data compiled by Bloomberg. The Kospi stock index declined 0.1 percent.

Output Rises

The nation’s industrial production rose the most in three months in April as improving domestic demand offset exports hurt by Europe’s debt crisis. Output rose 0.9 percent from March, when it declined a revised 2.9 percent, Statistics Korea said yesterday.

Exports rose to $47.2 billion in May from a revised $46.2 billion in April, today’s report showed. Imports declined 1.2 percent to $44.8 billion from a year ago. The trade surplus was $2.4 billion.

Shipments to the European Union declined 16.4 percent from a year earlier in the first 20 days of May, the ministry said. Exports to China, the biggest buyer of South Korean goods, dropped 10.3 percent and sales to the U.S. fell 16.5 percent. Data for exports to individual countries are only available for the first 20 days of the month.

Exports of semiconductors rose 1.2 percent last month while car exports gained 3.7 percent, the ministry said.

Samsung Electronics Co. (005930), the world’s largest mobile-phone maker last quarter, unveiled a new handset in the Galaxy S series in May, intensifying a battle with Apple Inc. for leadership in the smartphone market.

Growth Outlook

South Korea’s economy expanded at the fastest pace in a year last quarter, boosted by government spending and investments by semiconductor makers. Still, the central bank reduced its economic growth forecast for this year to 3.5 percent from 3.7 percent on April 16, citing downside risks from the European debt crisis and high oil prices.

Bank of Korea policy makers last month vowed to keep price gains at the midpoint of a 2 percent to 4 percent medium-term target.

“Recent declines in gasoline prices could lessen inflationary pressures,” Chang Jae Chul, an economist at Citigroup Global Markets Korea Securities Ltd. in Seoul, said before the release today. “But prices of agricultural products and other commodities are expected to rise further as import prices rise along with weakness of the won.”

Core consumer prices, which exclude oil and agricultural products, advanced 1.6 percent in May from a year earlier, today’s report showed.

To contact the reporters on this story: Cynthia Kim in Seoul at ckim170@bloomberg.net; Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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