Bloomberg News

South Korean Manufacturer Confidence Stays Near Post-Crisis Low

August 29, 2012

South Korean manufacturers’ confidence stayed near the lowest level since the global financial crisis, maintaining pressure for an interest-rate cut to support growth.

An index measuring expectations for September was at 75 from 70 the previous month, the Bank of Korea said in a statement in Seoul today. Those are the only readings below 80 since 2009, with any number below 100 indicating that pessimists outnumber optimists.

China’s economic slowdown and Europe’s debt crisis are dragging down South Korea’s exports, weighing on prospects for Asia’s fourth-largest economy. The central bank’s next interest- rate decision is on Sept. 13, with bond yields indicating that investors are waiting for further reductions after a surprise cut last month.

“Big uncertainties from Europe and China continue to cloud business conditions for Korean companies,” Lee Sung Kwon, an economist at Shinhan Investment Corp. in Seoul, said before the report. “Policy makers will need to make another rate cut.”

A measure of expectations at non-manufacturing companies was unchanged from August at 69, today’s report showed. The survey was conducted between Aug. 16 and Aug. 23 with responses from 1,424 manufacturers and 1,010 non-manufacturers.

Lee Yong Sup, an opposition Democratic United Party lawmaker, said yesterday that his party will drop a push for an extra budget to spur growth, because it’s now too late in the year.

Imports Slide

A report yesterday showed that a decline in imports drove the nation’s current-account surplus to a record in July.

“This is a recession-type surplus,” said Sun Yoo, a Seoul-based economist at Woori Investment & Securities Co. “The surplus number is mostly driven by reduced imports, which is a clear sign of slowing domestic growth.”

Posco, Asia’s third-biggest steelmaker by output, is among South Korean companies facing weakness in demand.

The business environment in the second half “will be worse than expected early this year because of weak demand from construction and shipbuilders,” Chief Financial Officer Park Ki Hong told investors in Seoul last month. “Still, our profitability in the second half will be better than the first half, driven by falling raw material prices.”

The nation’s three-year bonds have yielded less than the central bank’s benchmark interest rate for the longest period since at least Aug. 2000 as investors bet policy makers will lower borrowing costs further. The Bank of Korea’s seven-day repurchase rate is 3 percent.

Minutes released by the central bank this week showed that Lim Seung Tae was the only one of seven board members to oppose the surprise rate cut in July.

“It’s better to preserve policy room now so that we can take sufficient action in the future if the situation deteriorates much further,” Lim said, according to the record of the meeting.

To contact the reporter on this story: Cynthia Kim in Seoul at ckim170@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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