Signs of Cooling in Korea
Data on Inflation, Exports Suggest Rates Won't Rise Next Week [WSJ]
By JIN-YOUNG YOOK and JUNG-AH LEE
August 2, 2006
SEOUL, South Korea -- South Korea's economic expansion is looking less robust, with data showing slower-than-expected rates of growth in July exports and consumer prices.
With Monday's report on service-sector output -- a measure of domestic demand -- offering a similar message, expectations are rising that Korea's central bank will keep its overnight call rate steady at 4.25% when its policy board meets Aug. 10, economists said.
The Bank of Korea "scared us with a 3%-level inflation" forecast for this year and raised rates twice so far in 2006, but recent data suggest the inflation rate won't reach 3%, said Oh Suktae, an analyst at Citigroup.
Daewoo Securities economist Go You Sun also expects the Bank of Korea to stand pat on rates next week as the central bank's governor, Lee Seongtae, will be hard-pressed to keep his hawkish stance with inflation low.
The data lifted prices of local government bonds, as market participants shifted their attention to economic weakness as a potential concern, a bond trader said.
Consumer prices rose 2.3% in July from a year earlier and were up a seasonally adjusted 0.2% from June, the National Statistical Office said. On average, analysts had expected gains of 2.7% and 0.6%, respectively. In June, consumer prices rose 2.6% from a year earlier.
July's annual core rate of inflation, which strips out volatile energy and agricultural prices, rose 2.2% from a year earlier.
Trade figures also came in below forecast, even though economists had factored in the impact of an auto-workers strike on July output.
The value of July exports rose a preliminary 12.4% from a year earlier to $26.1 billion, while imports increased 18.4% to $25.5 billion, resulting in a trade surplus of $666 million, the Ministry of Commerce, Industry and Energy said. The trade surplus was the narrowest since February's $374 million and much slimmer than the year earlier's $1.7 billion surplus and June's $2.2 billion surplus.
In a recent poll of seven economists, the July trade surplus was forecast to reach $1.3 billion on the back of an expected 13.8% rise in exports and 17.5% rise in imports.
In a statement, the ministry said that without the disruption in auto exports, the trade balance would have remained at the monthly average surplus of $1.18 billion that was seen in the first half of the year.
The government said the labor strike at Hyundai Motor Co. between June 26 and July 22 reduced auto exports by about $700 million, or 57,000 vehicles. If not for the strike, the ministry said, exports would have risen at a much faster rate of 14% in July. |
