Global economic headwinds seen

Japan, S. Korea’s export slump viewed as latest signs global economy being hurt by trade war

SEOUL: In the latest signs the trade war is continuing to erode the global economy, exports in Japan and South Korea have extended their declines.

The continued weakness from the two Asian bellwethers reinforces the view at the weekend meeting among global finance ministers and central bankers in Washington that more needs to be done to spur demand.

While the US and China appear on course for a tentative deal and the global electronics sector is showing some signs of bottoming out, momentum in global trade is nowhere to be found.

That leaves the world economy headed for the weakest growth since the global financial crisis.

“Global trade growth looks awful,” said Rob Carnell, head of research and chief economist for Asia Pacific at ING Group NV.

“Governments are being very reticent to spend fiscal credibility they’ve earned over the years on addressing cyclical problems.”

Monetary policy makers say they’re running out of room to cut already-low interest rates.

Combining government spending along with monetary policy and structural reforms to juice growth was a main theme of the International Monetary Fund and World Bank’s annual meetings in Washington.

“Slower growth requires that monetary policy remains supportive, but we all recognize that it cannot do the job alone,” IMF chief Kristalina Georgieva said at the meeting in Washington.

“Fiscal policy must play a more active role.”

The IMF last week warned that budget chiefs in major economies “should be prepared for coordinated action in case of a severe downturn,” predicting the weakest expansion in a decade amid the Us-china trade war.

Joining the meeting in Washington, Bank of Korea governor Lee Ju-yeol said the trade war probably trimmed South Korea’s economic growth by 0.4 percentage points.

South Korea’s exports plunged 20% in the first 20 days of October, putting the trade-reliant nation on track for an 11th monthly decline.

Japan posted a 5.2% drop in September shipments to extend the longest declining streak since 2016.

Japan’s imports weakened 1.5%. South Korea’s fell 20%.

“We are also concerned about further declines in imports, which demonstrates a lack of a revival in investment,” Citigroup Inc economists Marie Kim and Jeeho Yoon wrote in a report.

Shipments of South Korean semiconductors - used in everything from smartphones to computers around the world - dropped 29%.

Exports to China, South Korea’s biggest trading partner, slid 20%.

The Bank of Korea cut its key interest rate last week to match a record low of 1.25% to support the slowing economy after the country saw its consumer prices drop for the first time ever in September.

The Bank of Japan plans to review the impact of the global slowdown on its own domestic economy and inflation later this month.

South Korea’s shipments to Japan dropped 21%, while imports plummeted 30%.

The two neighbours are embroiled in a trade spat linked to lingering disagreements over Japan’s colonial past.