The Economic 'Canary In The Coalmine' Is Singing

The crucial exports number showed unexpected strength.

Exports fell just 8.6 percent year-over-year to $42.3 billion. Economists were expecting exports to fall 9.2 percent.

Keep in mind that China's New Year holiday was particularly late this year, which is causing volatility in the year-over-year numbers.

In a note to clients, the economists at Societe Generale note that a better comparison would be the January 2012 export number, which was at $41.2 billion.

Having considered that, it's also worth noting that South Korea's won has jump 23 percent against Japan's yen in the past six months. This has made Korean goods less competitive in Japan, a major trading partner.

The South Korean trade data is often considered the global economic "canary in the coalmine" as it is the first major economic data point for the month of February. Also, the export-driven economy is heavily exposed to mainland Asia, including China.

The Domestic Economy

During the period, South Korea's imports were a bit weaker-than-expected, which reflects weakness in the domestic economy. This led to a larger-than-expected trade surplus.

"Given the absence of obvious economic shocks to the Korean economy in recent weeks or months, our suspicion is that these indications of weakness will prove temporary, but it is certainly a development that merits close monitoring," said SocGen economist Klaus Baader. "Some softness in import values is to be expected following the strong appreciation of the Korean won since mid-2012, but the February import data appear to reflect underlying weakness."