SEOUL — South Korea's economy inched toward its first recession in three years, as figures on Wednesday showed its January trade deficit soar to a record high due to a plunge in exports caused by a combination of long holidays and cooling global demand.

Asia's fourth-largest economy, which relies heavily on trade for growth, shrank 0.4 percent in the October-December quarter and is now on the brink of falling into what would be its first recession since the middle of 2020 during the height of the COVID-19 pandemic.

Exports fell 16.6 percent in January from a year earlier, the trade ministry said, worse than an 11.3 percent decline predicted in a Reuters survey and the fastest drop in exports since May 2020.

Imports fell 2.6 percent compared with a year earlier, less than a 3.6 percent drop predicted in the survey. As a result, the country posted a monthly trade deficit of $12.69 billion, setting a record amount for any month.

"I have a zero percent forecast for the first quarter growth, but today's trade figures are definitely a minus to that," Park Sang-hyun, economist at HI Investment and Securities, said.

Looming threat

The increasing chances of recession — two consecutive quarters of decline in gross domestic product — also underscore growing bets in markets that the central bank's campaign of raising interest rates since late 2021 has run its course.

Leading the sluggish trade performance in January were a 44.5 percent dive in semiconductor exports and a 31.4 percent fall in sales to China, the trade ministry said.

Both were the worst rates of decline since the 2008-9 global financial crisis.

South Korean bond yields fell across the board on the growing bets for a less restrictive monetary policy ahead, while stock and currency investors largely shrugged off the monthly figures.

Finance Minister Choo Kyung-ho said the long Spring Festival holiday in China and a steep fall in computer chip prices from a year ago are to be blamed for the sharp declines in export values, adding that China's optimization of pandemic policy would help ease the situation over time.

"The government will mobilize all available policy resources to help support a drive to boost exports, so that the timing of improvement in trade balance can be advanced," Choo said at a meeting of trade-related officials, without elaborating.

The government has forecast this year's exports would fall 4.5 percent after posting a 6.1 percent gain last year, and the trade ministry said it would do what it can to avert a decline.