KRW likely to face downside risks in near term on external factors, says Nordea Bank

Moon Jae-in was elected the new President of South Korea. But even if the election uncertain is over, the Korea won continues to face downside risks from North Korea’s nuclear threat, low public faith in the government and the continuous growth challenges. Moon faces difficult challenge of boosting economy growth and generating jobs. Moreover, he needs to address the North Korean nuclear threats and restore public confidence in the government. According to a Nordea Bank research report, progress in these areas would prove crucial for the outlook of South Korean won.

As was widely anticipated, the outcome of election did not have considerable and lasting effects on the won. On Wednesday, the KRW opened strongly against the USD but the gain was rapidly erased as North Korea threatened on Tuesday with another nuclear test.

“In the near term, we continue to see downside risks for the KRW, which will be driven mainly by external factors, notably geopolitical development and the USD. In the longer term, the KRW outlook depends on the new government’s economic policy”, stated Nordea Bank.

The South Korean economic growth is stuck at below pre-crisis level and consistently below its potential since 2011. The present tailwind in the export sector is expected to be for a limited period of time as it is mostly lifted by the temporary recovery in China. It does not alter the long-term growth challenge from the ageing population and sluggish productivity growth.