Exports drop in Korea

DBS says exports have fallen in month-on-month terms in April-May, reflecting the deterioration in global demand amid the worsening of European debt crisis.

Here’s more from DBS Group Research:

May industrial production (due Friday) is expected to post a modest rise of 0.3% MoM sa, down from 0.9% in April. Exports and investment should have dragged the output growth. Exports have fallen in month-on-month terms in April-May, reflecting the deterioration in global demand amid the worsening of European debt crisis.

Business spending should have also been held back, due to weaker export outlook and heightened volatilities in the FX market in May. The two business sentiment indices (respectively compiled by the central bank and the Federation of Industries) have both dropped to the same low levels as in 3Q11, when European crisis worsened last year and US rating was also downgraded. It seems that consumer confidence and consumer spending remain firm at present, thanks to the easing of oil prices inflation, and the government’s subsidies on social welfare that helped to lower the living costs.

We expect GDP growth to remain soft at about 3% QoQ saar in 2Q and 3Q, before returning to the potential rate in 4Q. The full year growth is estimated to be 3.1%. The finance ministry and the central bank recently have both signaled that their GDP forecasts for 2012 will be downgraded from the current levels of 3.7% and 3.5% respectively – probably getting closer to our estimate.