Falling exports put Korean recovery on shakier ground

South Korea's September exports posted their biggest annual drop in seven months while consumer inflation eased to a 14-year low, likely keeping the policy rate near record lows as a firm recovery for the trade-dependent nation looks far from assured.

With Europe still in the doldrums, China's growth-rebound in its infancy and the United States gearing to turn off the tap on cheap dollars, Asia's fourth-largest economy faces an uncertain outlook.

Data released by the Ministry of Trade, Industry and Energy yesterday showed that overseas shipments last month fell 1.5 per cent from a year earlier, the sharpest contraction since February. This was weaker than a 2 per cent rise forecast in a Reuters survey of economists and the 7.7 per cent rise in August.

Annual inflation eased to 0.8 per cent, its weakest level since September 1999 and slipping further below the central bank's 2.5-3.5 per cent target band. The inflation reading was also weaker than any individual forecast in a Reuters survey of economists.

"Construction investment and domestic consumption are all suffering," said Kiwoom Securities analyst Ma Ju-ok. "If you don't have demand then it will be hard for inflation to pick up."

The economy's pedestrian growth rate was underlined this week when President Park Geun-hye backed away from a pledge to balance the budget within her five-year term, as tax revenue is expected to fall seven trillion won (HK$50.42 billion) to eight trillion won short of the target.