"Our exports were supported by the price competitiveness that resulted from the won's sharp depreciation last year but the weakening yen will eventually erase the advantage," said Han Sang-chun, an analyst at the Daewoo Research Institute.

"I expect the current account surplus to be slashed by half this month (May) from April with exports slowing," he said.

The yen spent much of last week trading around 139 to the dollar, touching 139.20 at one point, a seven-year low. The won weakened slightly on Friday to 1,407, but wasstill well off the lows of nearly 2,000 to the dollar reached late last year. Local newspapers reported on Sunday the country's customs-cleared exports fell year-on-year in May, after increasing for three consecutive months. The newspaper attributed the decline to the weakening yen and dwindling international export prices.

The Chosun Ilbo and the Dong-a Ilbo quoted finance ministry and customs office officials as saying May's exports were estimated at $11.3 billion, down 3.8 per cent from a year ago. Last week, the country posted a rise in the current account surplus in April from March, but it was powered by falling consumer and capital goods imports rather than by exports.

Overall imports in April fell 35.6 per cent from the same month of 1997, with consumer goods and machinery imports sinking by up to 66 per cent, as production activity kept slowing. Exports rose 6.6 per cent year-on-year in April on a customs-clearance basis and by a smaller 1.5 per cent on the balance of payments basis, central bankdata showed. Industrial production and consumption fell by more than 10 per cent year-on-year in April, the second straight month of decline, and factories were operating at less than 70 per cent of capacity. "Indicators are signalling only one thing: that the situation will be worse in the second quarter than in the first quarter, and then further worsen the next quarter," said an economist at a government-backed research body who asked not to be named. "Our exports are relying almost wholly on external factors," said Han.

South Korea's gross domestic product (GDP) contracted 3.8 per cent year-on-year in the first quarter of this year, the first decline in more than 17 years. "We see the GDP shrinking by around four per cent in the second quarter with the slump in consumption and capital and construction investment deepening," said Kang Myung-hoon, an analyst at the Hanwha Economic Research Institute.

The finance ministry said that the consumer inflation eased in May from April but it was hardly a boostas the slower price growth was under pinned by the won's recovery against the US dollar. The consumer price index rose by 8.2 per cent year-on-year in May, against an 8.8 per cent rise in April and a 3.8 per cent gain in May 1997, the ministry said. Aggravating the situation will be massive industrial stoppages being planned by a militant labour union umbrella group. The unionists are planning to call a general strike to protest layoffs and demand renegotiation of the terms of the nation's International Monetary Fund (IMF) bailout package.

The IMF has recommended South Korea speed up restructuring of its shaky corporate and financial sectors to restore international confidence in the economy. The reforms are part of the nearly $60 billion bailout programme for South Korea arranged in December. The 560,000-strong Korean Confederation of Trade Unions led a massive protest rally on Saturday, with more than 1,000 labour unionists and students scuffling with riot police until late into the night on the streetsof central Seoul.