On Friday, the Bank of Korea slashed its forecasts for growth and inflation this year and next in recognition of ongoing headwinds and persistent challenges to the country’s export-dependent economy.
The bank kept rates on hold. Like officials at the Fed, the RBA and RBNZ, South Korean policymakers are hoping against hope that the accommodation delivered over the past six months will be sufficient to avert a more serious downturn.
And yet, myriad questions remain. Inflation in South Korea has flatlined (indeed, the country experienced outright deflation for the first time this autumn) and a simmering diplomatic spat between Seoul and Tokyo is making things worse.
On Sunday, there was more bad news. Exports plunged 14.3% in November, the trade ministry said.
It was the 12th consecutive monthly decline, and it was far worse than economists expected. Bloomberg consensus was looking for a 9.7% drop. A Reuters poll pegged it at 10.2%. The actual decline missed even the most pessimistic estimate.
Clearly, South Korea is hoping the US and China manage to come to some kind of interim arrangement that forestalls further escalations and rolls back some existing tariffs. Anything to help bolster global demand and reinvigorate trade flows.
“The optimism for the first-phase trade deal between the United States and China will take time before actually boosting exports, and today’s poor data means the turnaround in exports is taking longer than expected”, Chun Kyu-yeon, an economist at Hana Financial Investment told Reuters.
Jitters about a possible turning of the semi cycle have made things worse this year, although the news flow has been more mixed recently. Semiconductor exports plunged nearly 31% YoY in November, Sunday’s data showed.
Shipments to China tumbled 12.2%, a dubious encore after October’s near 17% decline. China is obviously a major destination for South Korean exports, and Chinese demand has waned amid a steady deceleration in the local economy.
Most believe exports will rebound in 2020 and that things are in the process of bottoming.
Fingers crossed, but if we had to guess, the BOK will end up cutting rates again before it’s all said and done.