South Korea's Exports Climb Less-Than-Expected 20.6%

By William Sim

Sept. 1 (Bloomberg) -- South Korea's exports increased less than economists expected as a strike cut production of vehicles.

Overseas shipments, which make up more than half of gross domestic product, climbed 20.6 percent in August from a year earlier, the Ministry of Knowledge Economy said in Gwacheon today. That compared with July's 36 percent gain and the 23.3 percent median estimate of 14 economists surveyed by Bloomberg News.

South Korea has been counting on increased shipments to China, Latin America and the Middle East to extend the economy's expansion as soaring living costs prompt local consumers to rein in spending. Higher fuel prices and a weaker won are fanning the fastest inflation in almost a decade, eroding the purchasing power of indebted households.

``It's the same old story that exports keep driving South Korea's economic growth,'' said Kwon Young Sun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``Export growth will likely slow in coming months amid a global economic slowdown.''

The five-year government bond yield rose 5 basis points to 5.91 percent at 10:14 a.m. in Seoul. The won fell 1 percent to 1,100.20 versus the dollar. The Kospi index of stocks dropped 2.9 percent to 1,431.67.

South Korea's won has slumped 14 percent this year against the dollar, the worst performer in Asia outside Japan. The weaker currency has helped exporters by making their products cheaper overseas even as it has driven up local prices by boosting import costs.

Imports into South Korea climbed 37 percent last month from a year earlier because of higher oil and raw-material costs, resulting in a trade deficit of $3.23 billion, the biggest shortfall in seven months.

Trade Balance

``Today's trade data should continue to weigh on the Korean won sentiment, said Frederic Neumann, an economist at HSBC Holdings Plc. in Hong Kong. ``The structural trade gap is likely to persist in light of continued elevated global commodity prices and an expected slowdown in external demand for Korean products.''

The trade balance may turn to a surplus in September as falling oil prices start to reduce the import costs of crude oil, the ministry said. Crude oil has declined 20 percent since touching a record of $147.27 a barrel in New York on July 11.

Net exports, the difference between exports and imports, powered more than half of the economy's second-quarter growth rate of 0.8 percent.

Shipments to Latin America gained 87.2 percent in the first 20 days of August, sales to China jumped 33.1 percent and exports to the Middle East increased 41.2 percent, today's report showed. Shipments to the U.S. rose 16.3 percent.

Hyundai Steel Co., South Korea's second-largest steelmaker, said second-quarter profit surged 70 percent as increased exports helped the company weather rising material costs.

Daewoo Shipbuilding & Marine Engineering Co., the world's third-largest shipbuilder, said last month that it won $1.46 billion of new overseas orders.

Auto Exports

``We expect exports to continue their relative out- performance and domestic-demand growth to remain under downward pressure,'' Kwon Goohoon, an economist at Goldman Sachs Group Inc. in Seoul, wrote in a report.

Exports of ships rose 147 percent and shipments of oil products climbed 99 percent. Exports of semiconductors fell 13 percent, while those of automobiles dropped 17 percent, today's report showed.

Workers at Hyundai Motor Co., GM Daewoo Auto & Technology Co. and Kia Motors Corp. have staged partial strikes as they demand pay increases and shorter working hours, resulting a loss of about $700 million in exports, according to the government.

Sporadic strikes this year have cost Hyundai Motor, South Korea's biggest carmaker, about 397 billion won ($362 million) and its affiliate Kia Motors 220 billion won in lost production, the companies said on Aug. 29.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.