South Korea's exports in September likely to disappoint as manufacturing sector loses steam

Exports growth in South Korea is expected to disappoint during the month of September as the country’s manufacturing sector has lost steam during the period.

South Korean exports are projected to fall back into the negative territory at -5.5 percent y/y this month after rising temporarily in August. Industrial production, meanwhile, is projected to drop -0.6 percent m/m, on a seasonally adjusted basis during the last month, compared to 1.4 percent in July this year, DBS reported. In fact, the Purchasing Managers’ Index (PMI) dipped to 48.6 in August, down from 50-50.5 in the previous four months.

Exports of electronics components is expected to receive support from rising demand in the iPhone supply chains. But the recall of Samsung’s new smart-phone product is not good news for Korea’s electronics industry as a whole. Meanwhile, the bankruptcy of Hanjin shipping could cause delivery delays and disrupt manufacturing processes temporarily.

It will also be interesting to see how consumer spending will respond to the implementation of a tough anti-corruption law from Sep16. The government has passed a KRW 11 trillion supplementary budget and the central bank has cut rates by 25 basis points so far, which should help to cushion the impact from external and domestic headwinds.

"For now, we maintain the view that GDP growth will slow moderately in 2H16, still holding at the 2 percent level," DBS commented in its latest research report.