South Korean exports in May suffered their worst annual fall in nearly six years partly hurt by a persistent slowdown in China, its biggest export market, heightening pressure on policy makers to cut interest rates again. The gloomy shipments data join poor results from a private-sector survey on the manufacturing sector, which analysts say don’t square with the central bank’s forecast for a pick-up in economic growth in the current quarter. "As external weakness filters through the domestic economy, downside risks to the Bank of Korea’s economic outlook grow," said Ronald Man, economist at HSBC in Hong Kong. "This suggests the monetary easing cycle is not over," Man said, predicting the central bank would cut its policy interest rate to all-time lows of 1.50 per cent in the next quarter following a surprise 25-basis-point cut to 1.75 per cent in March. The trade ministry said on Monday that exports by Asia’s fourth-largest economy fell 10.9 per cent in May from a year earlier, the biggest drop since a 20.9 per cent slump in August 2009 during the height of the global financial crisis. Weak oil prices and fewer working days also weighed on the figure, which lagged a median 9.0 per cent decline tipped in a Reuters survey of 15 analysts. South Korea is the first major economy to release May trade data, so the weak numbers suggest that global demand remains sluggish despite a recent round of monetary easings by policy makers around the world. China, a major market for domestic manufacturers, continues to remain in the doldrums with the latest factory activity surveys failing to allay concerns about its economic outlook. Exports to each of South Korea’s top three markets - China, the United States and the European Union - fell between 3.3 per cent and 9.0 per cent in May from a year earlier. The three markets take nearly half of South Korea’s total exports. Underscoring stagnant international demand, Hyundai Motor - the world’s fifth-largest automaker - saw a 7 per cent annual drop in the number of vehicles shipped abroad for the first four months of this year. The Bank of Korea in April forecast growth to speed up to 1 per cent in the current quarter, from 0.8 per cent in the first, but analysts say recent data fail to support this optimism. ANZ Bank economists expect a rate cut is possible at the June 11 review or in July, but say more is needed from policy makers. "The economic condition has deteriorated significantly enough to prompt the BOK to take action," they wrote in a note to clients.
