S.Korea Jan exports seen up sharply, but recovery still a way off

SEOUL - South Korea's exports likely rebounded sharply in January, but the pick-up will be due to extra working days compared with a year earlier and won't be enough to suggest that global demand is recovering in earnest, a Reuters survey showed.

Overseas shipments by the world's seventh-largest exporter likely grew by 10.6 per cent from a year earlier, the median forecast from a Reuters survey of 17 analysts shows, following a 5.7 per cent fall in December and a 3.8 per cent rise in November.

But analysts say the January export data will be distorted by the fact that there are two more working days this year compared with last year, making it hard to judge the strength of global demand. Likewise, the timing of the Lunar New Year will distort February data, as the holiday fell in January in 2012 but in February this year.

"The Bank of Korea will therefore likely remain cautious and wait for the full data (January and February combined) to be available to assess whether the global economy is growing at a sufficiently fast pace," said Ronald Man, a Hong Kong-based economist at HSBC.

South Korean exports fell by 1.3 per cent in 2012, when shipments shrank in 8 of the 12 months. Analysts and policymakers expect exports to recover and show modest growth this year, in line with expectations for a gradual global economic recovery.

But the South Korean won's rapid appreciation late last year has increased worries that local manufacturers' price competitiveness may be undercut. The currency gained 7.6 per cent against the dollar and by 22.8 per cent against the yen last year, with much of those gains seen in the fourth quarter.

The Bank of Japan has ramped up its quantitative easing in recent months, posing additional challenges for companies like Hyundai Motor Co who count Japanese firms as their main rivals. Despite profit-taking over the past week, the won is up by more than 3 per cent against the yen so far this year.

Separately, another Reuters survey tipped South Korea's annual inflation ratewould pick up slightly to 1.6 per cent in January from 1.4 per cent in December.

But the figure is still below the Bank of Korea's target range of between 2.5 per cent and 3.5 per cent, giving the central bank room to deliver another interest rate cut should growth remain sluggish.

The majority of economists surveyed following the central bank's decision to keep rates unchanged earlier this month expected at least one more 25-basis-point rate cut in February or March to spur growth.

Another Reuters survey of analysts showed that December's industrial output likely shrank by a seasonally adjusted 1.0 per cent from November, in line with weak exports during the month as well as fewer working days compared with a year earlier.

New export orders fell in December even as manufacturing activity expanded for the first time in seven months, a recent purchasing managers' survey showed, underscoring the fragile nature of the recovery.