SEOUL (REUTERS) - South Korea's exports tumbled for an eighth straight month in July, with persistently weak global demand and an escalating dispute with Japan painting an increasingly gloomy picture for Asia's fourth-largest economy.

Exports shrank 11.0 per cent in July from a year earlier, trade ministry data showed on Thursday (Aug 1), largely in line with an 11.3 per cent fall tipped in a Reuters poll.

Shipments to China fell 16.3 per cent, while semiconductor exports sank just over 28 per cent.

South Korea, home to the world's top producers of memory chips and steel products, is bracing for possible disruptions in production if a weeks-old dispute with Japan worsens.

"The July data failed to provide any indication of improvement in exports for the short run as semiconductor sales and exports to China continue to suffer," said Park Sang-hyun, economist at Hi Investment & Securities.

"Tensions with Japan are another potential risk going forward," Park added.

Imports in July fell 2.7 per cent over a year earlier, better than expectations for an 8.1 per cent drop. That brought the month's trade balance to a surplus of US$2.44 billion.

South Korea, the world's sixth-largest exporter, is the first major industrial economy to release trade data each month, providing an early assessment on the health of global demand.

A survey of purchasing managers by IHS Markit on Thursday pointed to further weakness ahead. New export orders for South Korean goods shrank the most in about six years, while business confidence crumbled, prompting factories to shed staff and cut prices of their goods to boost sales.

In early July, Japan tightened restrictions on exports to South Korea of key materials used to make memory chips and display panels. Economists say the tech export curbs could shave 0.4 percentage point off South Korea's gross domestic product this year.

Tokyo is now moving to remove Korea from its list of favoured trading partners, possibly as early as Friday.

Seoul believes the frictions with Japan are related to a diplomatic row over the compensation of forced labour during World War Two, which Tokyo has denied.

TRADE WAR FALLOUT

South Korea's exporters have already been struggling with weakening global demand and supply chain disruptions caused by the year-long US-China trade war, which have hurt sales and caused a slump in the prices of their goods.

The world's two largest chipmakers, Samsung Electronics and SK Hynix, have in recent weeks reported plunging profits.

Semiconductors make up about a fifth of the country's total exports. Excluding them, July exports were down by a smaller 6.6 per cent from a year earlier.

Washington and Beijing resumed face-to-face trade talks this week for the first time since they agreed on a tariff ceasefire in late June. But expectations for any substantial progress in the near-term are low.

As exports plunged, South Korea's economic growth cooled to 1.9 per cent in the first half of 2019 from a year earlier, the slowest pace since the 2008/09 global financial crisis.

The prolonged downdraft forced the country's central bank to deliver a surprise interest rate cut in July for the first time in three years, and it has signalled it could lower rates further.

Other data on Thursday showed annual inflation unexpectedly slowed to 0.6 per cent in July from 0.7 per cent in June, staying far below the central bank's 2 per cent target and strengthening case for easy monetary policy.

"With price pressures subdued and growth risks high, we are maintaining our view that another 25bp cut by the BoK is more likely than not," analysts at ANZ said in a note.