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UPDATE 3-Weak world demand hits South Korean foreign trade

Published 12/29/2009, 03:32 AM
Updated 12/29/2009, 03:33 AM

* Nov current account in surplus, but value plunges

* Dec exports seen up but below early 2008 levels

* Weak exports underscore hesitant global recovery

* Central bankers call for debate on policy tightening

(Updates with central bankers, Reuters poll)

By Yoo Choonsik

SEOUL, Dec 29 (Reuters) - South Korea's current account surplus fell 65 percent in November from October and its overseas sales this month probably remained depressed as global trade has yet to fully emerge from the worst slump in decades.

The current account surplus dropped to $1.17 billion in November from a revised $3.25 billion surplus in October, central bank data showed on Tuesday, as exports fell 5 percent on the month to a seasonally adjusted $33 billion.

"The figures show once again that the global economy's recovery is moderating in the fourth quarter and that advanced economies need more time to show a major recovery," said Lee Sang-jae, economist at Hyundai Securities.

For a graphic on the current account, double-click: http://graphics.thomsonreuters.com/129/KR_CRRAC1209.gif

A Reuters survey released on Tuesday showed exports from Asia's fourth-largest economy in December likely grew by a quarter over a year earlier, when world trade collapsed, but their value would still be far below levels seen in early 2008. [ID:nTOE5BL037]

The median forecast of the eight economists surveyed means exports this month will amount to $34 billion, about 10 percent below the levels seen in early 2008.

South Korea is due to release December export figures on Jan. 1. As the first major exporting economy in Asia to report such data each month, its figures could give an important reading on the health of world trade as the global economy slowly mends.

China and other export-dependent Asian counties have acknowledged that they need to expand demand at home to make their economies less exposed to sometimes wild fluctuations in global demand.

NEED FOR "NORMALISATION"

However, analysts said the poor export performance would not directly affect the country's economic policy because the Bank of Korea is growing more mindful of the effect on future inflation from record-low borrowing costs.

Analysts and investors are betting the central bank will start to raise interest rates within the next three months to prevent the accelerating recovery from stoking inflation.

At least two of the central bank's six board members said during a Nov. 12 policy meeting that there was a need to discuss getting extremely low interest rates back to more normal levels, minutes from the meeting released on Tuesday showed.

"I think there is a need to discuss normalising interest rates in view of (the effect of) real interest rates staying below or near zero for a long time," the minutes quoted one member as saying, without naming the official.

The Bank of Korea has held its 7-day repurchase agreement rate steady at 2 percent for the past 10 months after cutting it by 3.25 percentage points since late 2008 to spur economic growth. It will next review the rate on Jan. 8.

The current level is far below South Korea's annual consumer price inflation, which analysts expect to pick up to a seven-month high of 2.6 percent in December from 2.4 percent in November, another Reuters poll published on Tuesday showed.

Analysts and policymakers around the world are concerned that keeping interest rates extremely low for a very long period would fan inflation expectations among consumers and lead to asset price bubbles in anticipation of quick returns. (Editing by Jonathan Hopfner & Jan Dahinten)

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