Korea could see 1st trade deficit in 23 months in January

Korea could see its first monthly trade deficit in 23 months this month due to seasonal factors, fallout from the eurozone sovereign debt crisis, and rising oil prices linked to tension with Iran.

Knowledge Economy Minister Hong Suk-woo made the gloomy forecast in a Cabinet meeting chaired by President Lee Myung-bak Tuesday. "The export outlook for January isn`t good. We could record a monthly trade deficit," Hong said. President Lee responded by saying, "The eurozone fiscal crisis could worsen more than previously expected, and we must come up with measures," adding, "All related government agencies should prepare for measures in cooperation with private institutions."

"Exports are typically concentrated at the end of month, and it`s premature to suppose the shortfall amount," a ministry official said. Though the ministry gave no further details on the preliminary monthly data, trade sources project a deficit of 1 billion U.S. dollars given the impact of the eurozone crisis. Korea posted a monthly trade deficit of 800 million dollars in January 2010.

The bleak outlook came as companies massively shipped goods and services at the end of last year to boost earnings performance, while the Lunar New Year`s holiday falling this month means fewer working days. Industry sources say exports to European markets will fall considerably this year as the EU economy falters from the debt crisis, meaning the worsening of annual trade balance this year.

Shipbuilding and IT will be hit hardest as their exports hugely depend on Europe. A ministry official said, "European ship owners are already postponing ship delivery time."

The U.S. government’s demand for reduction of Iranian crude oil imports is also a negative factor. Due to its high reliance on crude oil imports, Korea must pay more to import them if oil prices surge. Rising import prices, coupled with a decline in export competitiveness, could further aggravate Korea`s trade balance.

The government cut its projection for this year’s trade surplus to 25 billion dollars, down 22 percent from 32.1 billion dollars recorded last year.

sukim@donga.com srkim@donga.com