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2014 Media Kit
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South Korea’s record October exports, strong industry index, cheer growth outlook

By: | at 01:01 PM | Channel(s): International Trade  

South Korean exports last month handily beat expectations to set a record and the manufacturing sector had its best month in five—affirming a nascent global recovery and improving the prospects of sustained growth.

Overseas shipments by grew 7.3 percent in October from a year earlier to $50.5 billion led by increased demand for mobile phones, cars and chips from the U.S. and European markets, government data showed on Friday.

South Korea, Asia’s fourth-largest economy and the world’s seventh-largest exporter, is the first major exporting economy to report foreign trade data each month, putting its performance under scrutiny by investors and policymakers around the world.

October’s outcome was almost double the 3.9 percent growth tipped in a Reuters survey of economists, with forecasts ranging from 0.4 percent growth to 8.0 percent growth.

The HSBC/Markit purchasing managers’ index (PMI) for South Korea’s manufacturing sector, released separately on Friday, showed that activity for the sector expanded in October for the first time in five months as the sub-index for exporters reached a 31-month high.

Taken together, the latest figures should bolster expectations that South Korea’s economic recovery will continue in the current quarter as external demand improves. The central bank said last week that sequential third-quarter economic growth stood at a seasonally adjusted 1.1 percent, matching growth in the second quarter.

“This shows that Korea remains on track for a gradual recovery as it heads towards year-end, especially with orders picking up on the external front,” HSBC economist Ronald Man said in a statement. “But there is still scope for demand from China to rise further, which would provide a further boost to Korean shipments.”

The Seoul stock market’s main KOSPI was up 0.3 percent as of 0149 GMT, outperforming the regional market’s slight decline measured by the MSCI Asia excluding Japan index , which dipped 0.1 percent. Technology shares led gains in Seoul.

Friday’s numbers should also ease concerns about September’s poor factory output data, which was distorted by poor car production because of strikes.

HI Investment economist Park Sang-hyun said the economy appears on a recovery track, projecting seasonally adjusted sequential economic growth of 0.9 percent during the October-December period.

“Overall, outlook for the fourth quarter looks positive with exports holding up,” Park said.

Trade ministry data showed that shipments to the United States and the European Union rose sharply in October while exports to China also grew, suggesting firm demand from South Korea’s three biggest markets.

Domestic Demand in Focus

Analysts say that domestic demand will be an important variable for growth in the current quarter, as the effects of the government’s stimulus package are expected to dissipate.

The central bank said last week that third quarter’s firm growth was spurred by a pickup in private consumption and capital investment, while latest consumer and business sentiment surveys also indicate growing optimism as the economy rebounds.

What remains unclear is whether the pickup in the third quarter will extend into the current period. Imports of capital goods and consumer goods rose by an annual 7.5 percent and 13.4 percent in the first 20 days of October, respectively, suggesting that at least some are opening their wallets.

Earlier on Friday, Statistics Korea said October’s consumer inflation eased to the slowest annual rate in more than 14 years due in part to sharp decline in fresh food and agricultural product prices.

Officials attributed this fall to unusually high prices a year earlier because of bad weather and expected the annual figure to rise to 1 percent or higher in November or December.

“The Bank of Korea should not take low inflation for granted,” HSBC’s Man said, noting that annual core inflation stood at 1.6 percent in October.

Data released by Kookmin Bank earlier on Friday showed housing prices across South Korea rose 0.20 percent in October from the previous month, suggesting stabilization in the ailing property market.

“I don’t think there is a need to fret about deflation at this point,” said HI Investment’s Park. “As external conditions are improving, inflation should gradually accelerate going forward.”

“The key issue will be how much local corporates go forward and what the government can do to alleviate constraints on private consumption from issues like household debt.” (Reuters)