Weak demand from overseas and continued stock exodus to bring current account down further


An increasingly worse outlook for Korea’s major trading partners is throwing more doubt on the debt and inflation-saddled economy.

Analysts expect the current account surplus to continue shrinking as demand drops this month and losses on stocks mount.

“Growth outlook in the U.S. and other advanced economies has stayed dismal and the slowdowns there cast a shadow over emerging economies,” Kim Hyung-ryul, an economist at Kyobo Securities, said.

The country’s September trade surplus shrank sharply from a year earlier to $1.44 billion, down from $4.41 billion the same time last year. September marked the 20th straight month of the trade account being in the black, but analysts expect performance drops in IT and semiconductor companies relying heavily on advanced countries.

The average level of revenue KOSPI-listed firms are expected to generate in the third quarter dropped 5.6 percent to 25.2 trillion won, according to analyst estimates compiled by Fn Guide, a leading online financial information provider. Most listed firms announce their third quarter earnings at the end of October.

The drop in the revenue forecast reflects declining performance of major exporters of Asia’s fourth largest economy. The darkening of projections came as the International Monetary Fund on Sept. 20 revised down the growth forecast for Korea this year to 4 percent from 4.5 percent.

“Major think tanks and economists are making downward adjustments to their earlier revenue forecast. Markets in general expect business sentiment to slow further this month,” Kim said. Kim predicted the KOSPI to trade between 1,650 and 1,900.

Kim Dong-hwan of Korea Institute of Finance said stagflation is imminent.

“There is a growing chance for the economy to enter stagflation as business activity slows down even under high inflation,” Kim said in his report on Monday. Stagflation means an economy has high inflation amid low economic growth, which poses a dilemma for the central bank in their monetary policies.

Consumer prices reached a three-year high to 5.3 percent in August from a year ago after staying above the central bank’s target range of 2 to 4 percent throughout this year.

Stocks and currencies are expected to remain volatile as investors track debt restructuring dramas unfolding in Europe. The benchmark KOSPI, highly correlated to indexes in the U.S. and Europe, lost almost 5.9 percent in September and 16 percent in the July-September period.

“Even as Europe approves the EU bailout fund for Greece, there is still a big uncertainty with losses expected at financial institutions. This will cast a shadow for traders in the coming weeks,” Kim Hak-hyun, a strategist at Daewoo Securities said.

The KOSPI closed at 1,769.65 on Friday, up 4.25 percent from a week earlier. The market was closed on Monday for a public holiday.

By Cynthia J. Kim (cynthiak@heraldcorp.com)