South Korea exports fall most in 6 years, raises rate cut prospect

South Korean exports posted their worst fall in six years in August as global demand wobbled, prompting some investment banks to trim this year's economic growth forecasts and call for another interest rate cut. Exports slumped 14.7 percent on-year to $39.3 billion, trade ministry data showed on Tuesday, marking the fastest decline since August 2009 and missing even the most pessimistic forecast in a Reuters survey of 15 analysts.
Mobile phones exports grew after Samsung Electronics launched new high-end models and cut prices. Semiconductor chip exports also grew,but other items on the list of South Korea's 13 leading exports showed declines. Australia and New Zealand Banking Group cut its forecast for South Korea's 2015 economic growth by half a percentage point to 2.2 percent, which would be the slowest growth since 2009. ING cut its projection to 2.3 percent from the previous 2.5 percent. "We have been holding a view that the monetary policy stance of the Bank of Korea is data dependent and we believe that the extent of export plummeting is large enough to trigger another interest rate cut in September's MPC," ANZ said in a note to clients. The Bank of Korea's monetary policy committee next reviews its policy on September 11.
The Bank of Korea's growth forecast for this year is 2.8 percent while the finance ministry set its goal at 3.1 percent, compared with last year's 3.3 percent. Inflation data out earlier in the day showed the central bank had room to cut its 7-day repurchase agreement rate further from the current record-low 1.50 percent, if needed to shore up Asia's fourth-largest economy. The statistics agency said the consumer price index rose 0.7 percent in August from a year earlier, the same as in July and in line with market expectations. It was the ninth month in a row that annual inflation was below 1 percent.
A Nikkei/Markit survey also found on Tuesday that South Korea's manufacturing activity contracted for a sixth consecutive month in August, and export orders received during the month shrank for a sixth month in a row. The trade ministry data showed exports to China fell by 8.8 percent in August in annual terms - the worst since May 2014 - as explosions in Tianjin hobbled export shipments. Exports to the US and EU also fell in August. South Korea is the world's first major exporting economy to report August trade figures, providing an early glimpse of the strength of the global demand.