South Korea to unveil stimulus steps as inflation, exports falter

FEB 2, 20168:35 AM

[SEOUL] The South Korean government will unveil stimulus measures on Wednesday as a collapse in exports and cooling inflation threaten a fragile economic recovery.

As a slowdown in China weighs on global growth, knocking export-reliant economies from Brazil and Europe to Japan and Indonesia, Finance Minister Yoo Il-ho said Seoul will take steps to boost faltering momentum in Asia's fourth-largest economy.

"External uncertainties have increased since the start of the year due to volatile Chinese stocks, falling oil prices and negative interest rates adopted by the Bank of Japan," Mr Yoo told a meeting of business lobby groups on Tuesday. "Tomorrow we will announce measures to support the economy in the first quarter."

Underscoring the minister's concerns, data released on the day showed South Korea's annual inflation rate cooled to its lowest in four months in January.

That followed downbeat data on Monday showing annual exports in January slumping over 18 per cent, with sales to China collapsing and adding pressure for more easing steps to restore economic momentum.

The consumer price index rose 0.8 per cent in January from a year earlier, Statistics Korea said, down from a 1.3 per cent increase in December and the slowest rise since a 0.6 per cent gain in September last year.

The CPI increase was slightly lower than the median 0.9 per cent projected in a Reuters survey.

Analysts say the government stimulus measures will probably be aimed at job growth and not involve additional public spending.

"Inflation last month was bad...Exports were also terrible in January but we need to take time to see if this was a temporary blip." said Park Seok-gil, economist at JP Morgan Chase and Co.

"It won't be easy for the government to take big steps right now."

Treasury bond yields slipped to record lows on Monday after the gloomy exports data.

January inflation was mainly dragged down by industrial products, the index for which was down 0.8 per cent on-year - the fastest decline since February last year.

Services gained 2.4 per cent from a year ago in January, in a glimmer of hope that consumption is still on the mend.

The Bank of Korea is widely expected to leave its policy rate at the current record-low 1.50 per cent at the next meeting on Feb. 16. However, analysts say the pressure for cuts is growing especially as growth remains sub-par.

Core inflation in January, for instance, was at 1.7 per cent, the lowest since December 2014.

REUTERS