* July exports +5.7 pct y/y (Reuters poll: +4.7 pct)
* July annual inflation at 1.6 pct (Reuters poll: 1.6 pct)
* July HSBC/Markit mfg, export orders PMIs both miss 50
(Recasts lead, adds context on rates, market reaction and
By Christine Kim and Choonsik Yoo
SEOUL, Aug 1 South Korean exports in July grew
at their fastest annual clip in seven months, but relatively
subdued inflation and weakness in shipments to China kept alive
the prospect of an interest rate cut at this month's central
bank policy review.
A combination of still-tepid global demand and weak domestic
consumption have seen Asia's fourth-biggest economy lose
momentum in recent months, and Friday's batch of data backed
market expectations for the Bank of Korea to add to the
government's $11-billion stimulus package announced last week.
"The possibility of a rate cut still stands as this week's
data including the output data showed overall performance of the
economy was far from improving very fast," Park Sang-hyun, chief
economist, HI Investment & Securities.
Many analysts now expect the Bank of Korea to trim the
policy interest rate by 25 basis points to 2.25
percent, perhaps as early as at its Aug. 14 meeting. It last cut
the rate by the same margin in May last year.
A rate cut may also help the economy to move past the ripple
effects from April's ferry accident, which depressed consumer
and business sentiment.
Crucially, South Korea's manufacturers are not selling
nearly enough to their biggest export market China, which took
some of the shine off total July shipments growth of 5.7 percent
from a year earlier to $48.42 billion - the biggest rise since
Exports to China, which takes about one-quarter of Korea's
shipments, fell a sharp 7.0 percent in July from a year before,
trade ministry data showed.
Kwon Pyung-oh, head of the ministry's trade and investment
bureau, told reporters the government is "very concerned" about
the drop in exports to the world's second-biggest economy.
Sales to the United States, however, jumped 19.4 percent,
while those to the European Union rebounded from the prior
month's fall, rising 11.5 percent.
Taken together, analysts still see sluggish exports growth
over the rest of the year, as a slowdown in China and a largely
uneven global recovery drag on the export-reliant economy.
"We still forecast single-digit growth (in South Korean
exports) on average for 2015," said Ronald Man, economist at
HSBC in Hong Kong, noting the slow recovery in exports. He added
double-digit growth would only be possible in late 2015.
South Korean financial markets showed muted reaction to the
batch of indicators as international events such as troubles in
Argentine and a slump on Wall Street overnight checked
sentiment, although a survey showing strength in China
manufacturing helped calm nerves.
EXPORTS GROWTH TO STAY FLAT?
South Korea's economy relies heavily on exports for growth
as performance by key exporting industries such as smartphone,
automobile and oil refining sectors has a strong influence on
jobs and investment.
With the economy slowing to its weakest in more than a year
in the second quarter, the government last week announced
stimulus measures including $11 billion in public spending and
easing of mortgage borrowing restrictions.
The government had predicted exports would begin picking up
from early this year, though global demand has remained uneven.
The challenging overseas conditions were highlighted again
in a private-sector survey by Markit Economics and HSBC released
separately on Friday. It indicated that new export orders
received by South Korean manufacturing companies during July
fell for a fourth consecutive month.
"We reiterate our baseline forecast that 2014 will be
another year of virtually flat export and import growths and a
wide trade and current account surpluses," ING said in a note to
clients, underscoring the cloudy outlook for South Korea's
The trade ministry data showed imports rose 5.8 percent to
$45.90 billion, resulting in a trade surplus of $2.52 billion
Inflation in July eased to an annual 1.6 percent from 1.7
percent in June, matching market expectations, as farm products
prices fell on year and prices of consumer goods remained under
pressure, statistics agency data showed.
A combination of weak domestic demand, benign global energy
prices and a firming won have held South Korea's annual
inflation below the lower end of the central bank's 2.5
percent-3.5 percent target band since June 2012. This gives the
BOK enough headroom to ease monetary policy without worrying
about letting inflation getting out of hand.
Housing price data from the country's top mortgage bank
showed on Friday South Koreans were positively reacting to the
government's property market measures as prices rose for an 11th
consecutive month in July.
(Editing by Shri Navaratnam)