Korea Exports Fall for 19th Month as Policy Makers Await Rebound

South Korean exports fell more than economists expected in July, underscoring the difficulties policy makers face, even as they look to use monetary and fiscal policies to boost growth. The government is hoping to see exports rebound in the second half of 2016.

Key points

  • Exports fell 10.2 percent (estimate -6.7 percent), the trade ministry reported Monday; the drop was larger than the most pessimistic projection by economists
  • That was the 19th straight monthly drop
  • Imports fell 14 percent (estimate -10.5 percent)
  • Trade surplus was $7.8 billion, down from record $11.5 billion in June

Big picture

South Korea generates about half of its gross domestic product from overseas sales. The prolonged contraction in exports is a source of concern, especially as domestic demand is also at risk due to corporate restructuring and an anti-corruption law due to start from September. The trade ministry expects global trade will improve in the second half of the year, although an export recovery is uncertain as emerging economies remain weak and there will be effects from Brexit. August performance will be key to gauging whether overseas sales will rebound, Trade Minister Joo Hyung Hwan said last week.

Economist Takeaways

  • Even though the decline in exports was bigger than expected, it shouldn’t be seen as a deterioration as there were fewer working days than in July last year, and per-day exports on average fell less than during January to May, Lee Sang Jae, an economist for Eugene Investment & Securities Co. in Seoul, said after the release
  • Exports may rebound in August as there are more working days and performance last year wasn’t so good, Lee said

The details

  • Decline in July exports was due to “temporary factors” including less working days, decline in sales of vessels, and auto workers’ strike hurting production, trade ministry said
  • Per day exports on average fell 4.4 percent, compared with 0.6 percent drop in June and 10.3 percent drop in May
  • Exports to Vietnam increased 7.6 percent; to Japan fell 2.1 percent; to EU dropped 4.3 percent; to China fell 9.3 percent and to U.S. dropped 14.3 percent
  • Current-account surplus was at a record high in June, mainly due to a record surplus in the goods trade.
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