Domestic demand remains the key driver in South Korea

South Korea's domestic demand is gathering pace thanks to the stimulus effects of monetary and fiscal policy easing. Retail sales registered a very strong rise of 3.1% (MoM sa) in Oct. Consumer confidence index picked up for the fifth consecutive month in Nov, staying firmly above the neutral level of 100. 

By contrast, the recovery in external demand remains weak and fragile. Although the year-on-year decline in exports narrowed to -4.7% in Nov from -15.9% in Oct, it was mainly helped by the low comparison base last year. Industrial production, meanwhile, fell again in Oct after a temporary rebound in Sep. 

Based on this first set of data for the OctDec period, a 3% (QoQ saar) growth is achievable for 4Q. This is lower than the longterm trend rate of 4%, but pretty much in line with the central bank's expectations. Unless growth results significantly deviate from official assumptions, the BOK is expected to hold rates steady at the present level of 1.50% over the next six months.