Foreign IBs cast gloomy outlook on Korea's H2 exports

Foreign investment banks (IBs) predict South Korea's slumping exports are unlikely make a rebound in the second half of this year due to a slew of unfavorable external conditions, a report showed Thursday.

The report, based on foreign IBs' forecasts and compiled by the Korea Center for International Finance, comes as overseas shipments of Asia's fourth-largest economy have been on the decline for more than one and a half years amid weak global demand.

South Korea's exports sank 10.2 percent in July from a year earlier, worse than a 2.7-percent decline in June and a 6.7-percent fall forecast by IBs.

Foreign IBs blamed July's plunge on sharp drops in exports of ships and automobiles, saying strikes at some South Korean carmakers, including industry leader Hyundai Motor Co., posed downside risks to its overseas shipments.

Despite the disappointing July performance, the commerce ministry is upbeat about second-half exports, but foreign IBs are pessimistic, according to the report.

Barclays, Citi Group and Nomura predicted it may be difficult for South Korea to enjoy a sharp rebound in momentum in the second half as sluggish global demand and downward pressure on export prices are likely to continue down the road.

In particular, Goldman Sachs and Bank of America Merrill Lynch cited that South Korea will find it hard for its export momentum to turn for the better in the latter half of the year, given weaker than expected U.S. growth in the second quarter, China's weakening stimulus, a slowdown in European economies and a structural slump in global trade.

Barclays, however, projected South Korea to post a slowdown in the decline of exports or see its overseas shipments turn around and rise in August due to longer working days.

The report also cited Bank of America Merrill Lynch as predicting that the recent volatility of the South Korean currency will have both positive and negative impacts on the country's exports. It said that the won has risen 5.3 percent against the U.S. dollar this year, while it has fallen 11 percent against the yen.

The local currency finished at a 13-month high of 1,108 won against the greenback Monday after gaining 7 percent against the dollar over the past one-month period. A stronger local currency is usually deemed a big obstacle for export-dependent Korea Inc. as it makes exports more expensive in overseas markets.

Citi Group, meanwhile, said South Korea's second-half industrial production may get a boost from its increased fiscal spending, a possible interest rate cut and signs of improvement in consumer confidence.

BNP Paribas predicted South Korea's consumer prices to remain low in the second half amid low economic growth, according to the report. South Korea's consumer prices rose 0.7 percent in July from a year earlier, marking the lowest on-year gain in 10 months.  (Yonhap)