South Korea’s Export Growth Slows in September, Supporting Rate Cut Expectations

South Korea's export growth decelerated in September, with shipments to the United States losing momentum, bolstering expectations for a possible easing of monetary policy.

Exports increased by 7.5% year-over-year, slowing down from an 11.2% rise in August, according to the Korea Customs Service. The figure beat analysts' forecasts of 6.5% growth. However, it reflected a significant downturn, primarily driven by a slowdown in shipments to the U.S., which rose only 3.4% in September, a notable decrease from the 11% growth seen in August.

As Asia’s fourth-largest economy, South Korea’s monthly trade figures are seen as a key indicator of global trade trends, as they are released before other major exporting countries' data.

Speculation on a Possible Rate Cut

The report adds to speculation that the Bank of Korea (BOK) may cut its policy interest rate from the current 3.50% at its upcoming rate-setting meeting next Friday. The potential rate cut is motivated by concerns over economic growth, which are overshadowing inflation risks. A slowdown in export growth may offer further rationale for a rate cut, following declines in private consumption and construction investment in the second quarter.

“Given how sluggish domestic demand has been, this data supports an interest rate cut, but it will depend on how board members assess financial stability risks,” said Park Sang-Hyun, an economist at HI Investment & Securities. “It’s clear that South Korea is unlikely to see the significant U.S.-bound export boom of recent years.”

Trade Breakdown by Destination and Sector

When adjusted for working day differences, exports rose 12.9% year-over-year. However, growth in exports to China, Japan, and India moderated compared to August. Key sectors contributing to export growth included semiconductors, which surged 37.1% year-over-year to a record $13.6 billion in September. Car exports increased by 4.9%, while shipments of mobile communication devices jumped 19.0%.

Imports increased by 2.2%, falling short of analysts' 3.0% forecast, leading to a preliminary trade surplus of $6.66 billion, up from $3.77 billion in the previous month. The extended Chuseok holiday in September led to fewer working days, impacting the overall trade figures.