July 1, 2018 / 2:16 AM / in 3 months

South Korea's July exports return to growth, but outlook murky

SEOUL, August 1 (Reuters) - South Korea’s exports returned to growth in July on brisk sales of memory chips, but the chill from a deepening U.S.-China trade conflict had still to be felt, and there were also doubts over how much longer booming demand for chips would last.

Exports increased 6.2 percent from a year earlier to $51.9 billion, marking a rebound after slipping 0.2 percent in June, government data showed on Wednesday.

Economists polled by Reuters had forecast 7 percent growth.

Imports surged to $44.9 billion, up 16.2 percent from a year ago, slightly below 16.6 percent seen in the survey.

Solid overseas sales of South Korean goods indicate the trade tension between the United States and China have not yet dealt a serious blow to South Korean economy, though tougher times are expected.

Economists worry that the trade war may crimp South Korea’s exports to China, its biggest trading partner and major buyer of South Korean intermediate goods.

“The U.S.-China trade conflict will put downward pressure, and exports could dwindle,” said Kim Yu-mi, an economist at Kiwoom Securities.

Some analysts also foresee an imminent end to the two-year global chip boom, which had fuelled the strong export growth in the past year.

An early warning sign flickered with the 6.6 percent drop in facility investment in the second quarter, which the Bank of Korea attributed to “weaker investment for memory chips and display panels.”

But for now, August could see a temporary boost from sales of new gadgets, according to Park Seok-gil, an economist at JP Morgan. Samsung Electronics (005930.KS) is scheduled to launch a new Galaxy Note early August.

In July, shipments to China, South Korea’s biggest trading partner, surged 27.3 percent in July, marking 21 months of consecutive gains, thanks to robust memory chip sales.

Exports to the U.S. and Japan gained 8.8 percent and 17.6 percent, respectively.

Still, shipments of cars to the U.S. declined 2.6 percent while steel exports dropped 23.4 percent, hit by import tariffs on steel, according to South Korea’s trade ministry.

Six of 13 top export items logged double-digit growth in July, including petroleum goods which soared 45.2 percent, steel at 34 percent, and semiconductor at 31.6 percent on-year.

A separate government statement released earlier on Wednesday showed inflation stood at 1.5 percent in July, unchanged from a month earlier and underperforming the central bank’s annual inflation target of 2 percent.

Editing by Simon Cameron-Moore and Sam Holmes

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