(Updates markets in seventh paragraph.)
Feb. 1 (Bloomberg) -- South Korea’s exports unexpectedly fell for the first time in more than two years and inflation moderated to the slowest pace in 12 months, boosting the case for holding off on interest-rate increases.
Overseas shipments dropped 6.6 percent in January from a year earlier after a revised 10.8 percent rise in December as Europe and the Lunar New Year holiday disrupted shipments, the Ministry of Knowledge Economy said in a statement today. Consumer prices rose 3.4 percent from a year earlier, the slowest since January 2011 when they gained at the same speed, a separate report today showed.
The releases add to signs that Europe’s crisis is weighing on South Korea’s trade partners while providing policy makers a reason to cut or hold off raising rates. Bank of Korea Governor Kim Choong Soo has said rates are below desired levels, adding that the situation can’t be left for long.
“The economy may hit bottom this quarter before recovering slowly later this year,” said Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul.
Exports fell to $41.5 billion in January from a revised $48.9 billion in December, today’s report showed. Imports climbed 3.6 percent to $43.5 billion. The trade shortfall was $1.96 billion, the first deficit since January 2010.
“Exports will improve in February with more working days,” the ministry said in today’s statement.
The won dropped 0.3 percent to close at 1,126.35 per dollar in Seoul, according to data compiled by Bloomberg. The Kospi stock index gained 0.2 percent.
Shipments to Europe dropped 44.8 percent from a year earlier in the first 20 days of January, the ministry said. Shipments to China, the biggest buyer of South Korean goods, increased 7.3 percent. Exports to the U.S. and Japan rose 23.3 percent and 37.2 percent respectively. Data for exports to individual countries are only available for the first 20 days of the month.
Semiconductor exports fell 8.5 percent, the ministry said. Overseas shipments of vessels dropped 41.5 percent.
The 3.4 percent gain in consumer prices compares with a 4.2 percent advance in December. The median estimate in a Bloomberg News survey of 18 was for a 3.6 percent increase. Prices rose 0.5 percent from December. The bank aims for inflation of 2 percent to 4 percent.
Core prices, which exclude energy and food costs, advanced 3.2 percent in January from a year ago, today’s report said.
Scope to Cut
The International Monetary Fund lowered its estimate for global growth this year to 3.3 percent from a September forecast of 4 percent on Jan. 24, warning the European debt crisis threatens to derail the world economy. The expansion next year will be 3.9 percent, down from 4.5 percent. The euro area may enter a “mild recession” in 2012 as it shrinks 0.5 percent. South Korea’s growth forecast for this year was cut to 3.5 percent from 4.4 percent.
Asia-Pacific nations including the world’s most populous, China, have scope to boost spending and cut borrowing costs to protect their economies should the global slowdown worsen, the IMF’s Asia-Pacific department chief, Anoop Singh, said earlier this week.
Both the Bank of Korea and the South Korean government forecast 3.7 percent growth this year. The nation’s gross domestic product expanded 0.4 percent in the fourth quarter of 2011 from the previous three months, the slowest in two years, according to a BOK report on Jan. 26.
Finance Minister Bahk Jae Wan said this week that the economy may hit bottom in the first or second quarter due to Europe. Output declined for a third month in December, hurt by slowing exports and sluggish domestic demand.
--With assistance from Sarina Yoo in Seoul and Iain Wilson in Sydney. Editors: Iain Wilson, Paul Panckhurst
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