South Korean Exports Drop By Most Since 2001 on China

By William Sim

Dec. 1 (Bloomberg) -- South Korea’s exports fell by the most in almost seven years in November as shipments to China and the U.S. slumped, adding to concern the economy will sink into its first recession in a decade.

Overseas shipments tumbled 18.3 percent from a year earlier, following October’s 8.5 percent gain, the Ministry of Knowledge Economy said in Gwacheon today. That’s the biggest decline since December 2001 and larger than the median estimate of an 11.1 percent drop in a Bloomberg News survey of 13 economists.

The report underscores signs Asia’s export-driven nations are being battered by faltering demand for their products amid recessions in the U.S., Japan and Europe and weakening growth in China. President Lee Myung Bak last week urged his ministers to take more steps to fight the worst financial crisis since South Korea’s bailout by the International Monetary Fund in 1997.

“Things are getting worse as the global recession spills over to emerging markets,” said Kwon Young Sun, an economist at Nomura International Ltd. in Hong Kong. “The government should take massive action to support the economy.”

South Korea has pumped funds into its financial system, boosted public spending and slashed interest rates to save an economy that grew at the slowest pace in four years last quarter.

The Kospi index of shares rose 0.2 percent to 1,078.26 at 10:40 a.m. in Seoul. Shares of exporter Samsung Electronics Co. fell 1.2 percent and those of Posco dropped 1.5 percent. The won declined 0.4 percent to 1,475.50 per dollar.

Stocks, Currency Drop

The Kospi plunged 43 percent and the won slumped 37 percent this year on concern the country may face a repeat of a financial crisis a decade ago.

The nation posted a trade surplus of $297 million in November as imports fell 14.6 percent on declining oil prices.

Exports to China, South Korea’s biggest overseas market, tumbled 27.8 percent during the first 20 days of November, today’s report showed. Sales to Latin America fell 5.8 percent and shipments to the U.S. dropped 6.2 percent. In contrast, shipments to the Middle East surged 30.6 percent

“The worst-case scenario is that our exports to China cool more than expected,” said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. “The economy will face a deeper downturn if that happens.”

China last week cut its benchmark interest rate by the most in 11 years and has unveiled a 4 trillion yuan ($585 billion) stimulus plan.

Semiconductors, Cars

South Korea’s exports of semiconductors plunged 44 percent in November from a year earlier, while those of automobiles declined 13 percent. Sales of ships surged 35 percent.

Goldman Sachs Group Inc. last week cut its 2009 economic- growth forecast for South Korea to 1.8 percent from 3.1 percent previously, citing faltering local and overseas demand. Macquarie Securities Ltd. forecasts the economy will contract 2 percent next year and UBS AG said it will shrink 3 percent.

Goldman Sachs says exports will likely fall 4.2 percent next year and Macquarie Securities Ltd. estimates they will drop by 12 percent because of the deepening global recession.

Hyundai Motor Co., South Korea’s largest automaker, will close its only U.S. factory for 11 days this quarter as demand wanes in the world’s biggest auto market. Posco, Asia’s third- biggest steelmaker, is slashing planned output by about a third in the fourth quarter.

A report today may show consumer prices rose by the least in seven months in November, giving the central bank room to cut borrowing costs further, according to a survey of economists.

The Bank of Korea slashed its key rate to 4 percent on Nov. 7, the third reduction in four weeks and the most aggressive round of easing in a decade. The bank signaled it is ready to act again. The board next meets on Dec. 11.

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