* South Korean November exports slump 18.3 percent
* Slowdown faster than expected, government official warns
* Inflation hits 7-month low, bonds surge on rate cut hopes
By Cheon Jong-woo and Seo Eun-kyung
SEOUL, Dec 1 (Reuters) - South Korean exports suffered their biggest drop in seven years, prompting a warning from a government that the economy was slowing faster than expected and piling pressure on the central bank for more interest rate cuts.
Analysts said that as the global downturn cuts into exports that have long underpinned growth in Asia's fourth largest economy, the authorities had no choice but to focus on sagging domestic demand for some economic support.
"The speed of the economic slowdown is faster than expected. The economy is seen recovering in the second half of the next year ... but the speed is likely to be very slow if the situation remains tough," a finance ministry official told Reuters, asking not to be identified.
The official was speaking after the government announced that November exports plunged 18.3 percent from a year earlier, much more than expected.
Analysts painted an even bleaker picture.
"The figures showed the country's economy is going down the tubes rapidly and indicated overall Asian exports are shrinking very quickly. Next year, South Korean exports are expected to post a fall, probably up to 30 percent." said Oh Suk-tae, an economist at Citigroup.
"The Bank of Korea will cut interest rates next week further, but a 25 basis point cut will not be enough. I expect the BOK to slash rates to 3 percent in the next six months."
Government bond futures
The central bank holds its next monthly rate meeting on Dec. 11.
Imports fell 14.6 percent due to sliding raw material prices, also more than expected, but not enough to improve the deteriorating trade balance.
South Korea reported a $13.3 billion trade shortfall during the first 11 months of the year, putting the country on course for its first yearly deficit since 1997, when it was hit by the Asian financial crisis.
"It is inevitable for the annual trade deficit to exceed $10 billion," Chung Jae-hoon, director general for trade at the ministry, told reporters.
In 2007, South Korea had a $14.6 billion trade surplus.
"With industrial output and export data pointing to a growing risk of recession, the central bank is now under growing pressure for more rate cuts. It may opt for another 50 basis-point cut next week," said SK Securities economist Song Jae-Hyeok.
TRADE LOAN RATES CUT
In its latest moves, the central bank said it had cut the interest rates for loans that smaller exporters take out using their trade bills as collateral by 20-30 basis points and removed the two-year limit on rolling over foreign exchange borrowings where the funds are used for working capital.
It also promised to continue to provide more financial support until it runs out of a $10 billion pool for traders.
One statistic which may make it more willing to cut rates was consumer inflation, which rose a less-than-expected 4.5 percent -- its slowest annual growth since April.
"With further signs of easing prices and exports shrinking too sharply, the government cannot help but rely on domestic demand to avert a recession," said Hyundai Securities economist, Lee Sang-jae.
"To encourage households and businesses to spend more, the government will try whatever weapons it can employ, including fiscal spending and monetary easing." (Writing by Jonathan Thatcher; Editing by Tomasz Janowski)