Home Business S.Korea August trade deficit hits record, adding pressure on won By Reuters

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

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



© Reuters. FILE PHOTO: A truck carrying a shipping container travels past cranes at Pyeongtaek port in Pyeongtaek, South Korea, July 9, 2020. REUTERS/Kim Hong-Ji

By Jihoon Lee

SEOUL (Reuters) -South Korea’s export growth slowed in August but imports accelerated, widening the trade deficit to a record amount and adding downside pressure on the won, already hovering at over 13-year lows.

Outbound shipments grew 6.6% in August from the same month a year earlier, trade ministry data showed on Thursday, beating 5.5% tipped in a Reuters poll of analysts but slower than a 9.2% rise in July.

Imports jumped 28.2%, much faster than 21.8% in the previous month and 22.9% tipped in the survey, to reach the biggest monthly amount on record.

That brought the trade balance to a $9.47 billion deficit, nearly double the previous month’s $4.80 billion, marking a fifth consecutive month in the red and the biggest monthly amount on record.

“Although export growth slowed, imports kept up their pace due to high commodity prices, with accounting for more than half of South Korea’s imports,” said Lee Seung-hoon, chief economist at Meritz Securities.

“The trade balance will remain in deficit for some time, but it is more likely to narrow than widen going forward, as oil prices are certainly in a downtrend and are reflected in import prices with a one-month lag.”

The record trade deficit puts more pressure on the South Korean won, which has weakened more than 11% against dollar so far this year to the lowest level since April 2009.

“Counter-intuitively, we have found that the trade balance has a much higher correlation with the won than the current account balance,” Standard Charted said in a research note published last week.

“We do not expect the trade account to turn supportive of the won in the near term. Slowing global growth and external demand will likely keep the trade account under pressure, outweighing any benefits from a pullback in commodity prices.”

The Bank of Korea last week raised its policy rate by a quarter-percentage point and signalled more tightening, in part to counter the won’s weakness, which it attributes to the ‘s depreciation and continuing trade deficits.

By destination, shipments to the United States and European Union gained 13.7% and 7.3%, respectively, but those to China were down 5.4%, extending losses to a third month.

Sales of petroleum products surged 113.6% and cars rose 35.9%, while the country’s biggest-selling item, semiconductors, fell 7.8%.



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