Korea’s export growth may have dropped to 21.4% in September

More economic data for the Aug-Sep period will be available this week to help assess the impact of global financial market turmoil over the past 1-2 months. Given that exports have maintained steady growth in August and PMI manufacturing has stayed close to 50, industrial production should have avoided a sharp correction in the month. Market consensus forecast of -0.3% MoM sa appears reasonable.

The continuation of financial market volatility for the second consecutive month in September is undoubtedly negative, as the prolonged weakness in sentiments can eventually affect the actual business activity. That said, we don’t foresee a sharp slowdown in Korea’s exports in September. The faster depreciation in the won compared to major Asian currencies is likely to be supportive for Korea’s exports and overall economic growth, based on the central assumption that global economic conditions will be weak but not recessionary.

This is also in accordance with our view that the adverse impact on domestic demand from a weak won will be relatively limited, because the decline in the won will be manageable this time around thanks to the substantial improvement in Korea’s external position after the 2008 GFC. We expect the year-on-year export growth to decelerate to 21.4% in September from 25.9% in August. A MoM drop in September exports will unnecessarily signal a trend of contraction, as the holiday effects may have been at play – the Chuseok festival this year arrives about two weeks earlier than last year.