S.Korea August trade deficit hits record, adding pressure on won

By Jihoon Lee

SEOUL (Reuters) -South Korea’s export development slowed in August however imports accelerated, widening the commerce deficit to a file quantity and including draw back stress on the received, already hovering at over 13-year lows.

Outbound shipments grew 6.6% in August from the identical month a yr earlier, commerce ministry knowledge confirmed on Thursday, beating 5.5% tipped in a Reuters ballot of analysts however slower than a 9.2% rise in July.

Imports jumped 28.2%, a lot quicker than 21.8% within the earlier month and 22.9% tipped within the survey, to succeed in the largest month-to-month quantity on file.

That introduced the commerce steadiness to a $9.47 billion deficit, practically double the earlier month’s $4.80 billion, marking a fifth consecutive month within the purple and the largest month-to-month quantity on file.

“Though export development slowed, imports stored up their tempo because of excessive commodity costs, with crude oil accounting for greater than half of South Korea’s imports,” mentioned Lee Seung-hoon, chief economist at Meritz Securities.

“The commerce steadiness will stay in deficit for a while, however it’s extra prone to slim than widen going ahead, as oil costs are actually in a downtrend and are mirrored in import costs with a one-month lag.”

The file commerce deficit places extra stress on the South Korean received, which has weakened greater than 11% towards greenback up to now this yr to the bottom stage since April 2009.

“Counter-intuitively, now we have discovered that the commerce steadiness has a a lot larger correlation with the received than the present account steadiness,” Normal Charted mentioned in a analysis observe printed final week.

“We don’t count on the commerce account to show supportive of the received within the close to time period. Slowing international development and exterior demand will possible hold the commerce account below stress, outweighing any advantages from a pullback in commodity costs.”

The Financial institution of Korea final week raised its coverage price by a quarter-percentage level and signalled extra tightening, partly to counter the received’s weak spot, which it attributes to the Chinese language yuan’s depreciation and persevering with commerce deficits.

By vacation spot, shipments to the USA and European Union gained 13.7% and seven.3%, respectively, however these to China have been down 5.4%, extending losses to a 3rd month.

Gross sales of petroleum merchandise surged 113.6% and vehicles rose 35.9%, whereas the nation’s biggest-selling merchandise, semiconductors, fell 7.8%.

(Reporting by Jihoon Lee; Modifying by Christopher Cushing and Richard Pullin)