Conflicting macro data is providing both good and news for the Moon Jae-in administration in Seoul. While job growth is rising at a faster-than-expected pace, exports are plunging due to the cross-Pacific trade war, and the central bank is hinting at a rate cut.

South Korea added almost 250,000 jobs in May, but exports in the first 10 days of June were down 16.6%, and a government official told Asia Times that he anticipates minus growth for the month.

Meanwhile, the central bank chief hinted at a shift in policy towards a rate cut as it looks likely that the government will have to revise down its GDP growth estimate for 2019, which currently stands at 2.6-2.7%.

Job surge

South Korea added 259,000 jobs in May thanks to growth in the service sector and governmental spending, according to data released on Wednesday by the National Statistical Office.

The number of newly employed people increased by only 19,000 in January, but exploded to 263,000 in February and 250,000 in March. Raising some concerns, that figure dipped in April to 171,000, but in May, surged once more.

Job growth so far this year exceeds the government’s stated goal of a monthly average of 150,000, indicating Seoul many raise its forecast when it announces its policy direction for the second half.

Among industries, standout numbers were seen in the service sector, which added 320,000 jobs; the health and social welfare service sectors, which added 124,000; and professional science and technology services, where jobs also increased by 37,000.

However, the number employed in finance fell by 46,000, while those employed in public administration, national defense, and social security administration dropped by 40,000.

Many sectors, including wholesale and retail, lodging and restaurants have been struck by the minimum wage hike. The number of unemployed rose 24,000 year-on-year, with the unemployment rate standing at 4.0% – 0.4% lower than in April.

“Employment appears to be out of last year’s weak trend, with the number of employed hovering above the original target of 150,000 for the fourth straight month,” the finance ministry said in a press release.

Export red light

According to the Korea Customs service, the value of exports between June 1-10 was $10.3 billion – a 16.6% drop, year-on-year. Imports totaled $12.5 billion – a 10.8% decrease year-on-year.

Shipments of semiconductors fell 30.8%, according to Yonhap news agency, while exports to China and the United States – South Korea’s top two trading partners, but also the main antagonists in the trade war – declined 26.7% and 7.6%, respectively.

Even though Korea’s exports tend to trend higher at months’ end, as exporters wait to fill containers before shipping, these are bad numbers. A government official told Asia Times that overall export numbers are expected to decline for the month.

Growth downgrade likely

Expectations are that the government will revise down its growth forecast for the year, which currently stands at 2.6-2.7%. The Bank of Korea’s more conservative forecast of 2.5% now looks attainable only if the economy continues to grow by more than 1%, month-on-month for the remaining three quarters.

As external conditions continue to deteriorate, experts suggest that will be difficult to achieve.

The first half of 2019 had been widely expected to be bearish, given a cyclical global downturn that a key Korean export – semiconductors – was facing. But the depressed global trade environment is adding further pressure to the downturn.

However, if, as expected, there is an upturn in the second half, the rebound will benefit from a lower-than-expected base effect in H1.

Course change for BOK?

Also on Wednesday, Bank of Korea Governor Lee Ju-yeol signaled a possible shift on rates.

In a speech, Lee said: “As external uncertainties have increased due to the US-China trade dispute and slump in the semiconductor market, we must take appropriate measures to accommodate changes in economic conditions while closely monitoring the direction of changes and their impact.”

Over the last few months, Lee – convinced of an economic rebound in H2 – had ruled out rate cuts, but the market was supportive of his apparent flexibility.

“It is not strange at all that he moves like that, given the worsening external condition and peer central banks’ move,” a source familiar with monetary policy told Asia Times. “Korea is considered the country hit hardest by the trade war.”