The South Korean economy is unlikely to be impacted significantly by the likely outcome of Brexit vote. First and foremost, the country does not have a strong trade linkage with the euro area and/or with the UK. Last year, South Korea shipped just 1.4 percent of its total exports to the UK, whereas its exports to the euro area pegged at 9.1 percent. Secondly, the adverse effect on exports is likely to be countered by additional fiscal easing, noted Societe Generale in a research report.

The extent of supplementary budget in the second half of 2016 is expected to be larger than anticipated earlier – KRW 15 trillion, rather than KRW 10 trillion.  Moreover, fiscal policy stance next year will become more accommodative, added Societe Generale.

The possibility of the Bank of Korea lowering its key interest rate by 25 basis points has increased because of the Brexit vote. But the central bank is likely to be reluctant in lowering the rates further to 0.75 percent or below. The central bank officials believe that effective lower bound in nominal policy rates is higher than zero.

“We maintain our 2016 GDP forecast of 2.7 percent, while we lower the 2017 GDP forecast a bit from 2.8 percent to 2.7 percent to reflect the potential negative impacts on exports,” said Societe Generale.

South Korea’s fiscal deficit to the GDP is now projected to be 0.6 percent this year and a deficit of 0.3 percent in 2017.