South Korean economy expands slightly below expectations in Q1, KRW likely to remain weak in near future

The South Korean economy expanded slightly below market projections in the first quarter. The GDP grew 2.8 percent year-on-year in March quarter, as compared with market expectations of 2.9 percent. On a sequential basis, the economic growth continues to keep a decent rate at a pace of 1.1 percent. At first glance, the growth figures appear fine.

But as a bellwether of a global trade, the South Korean economy is facing solid headwinds, noted Commerzbank in a research report. On the other hand, South Korea will also be negatively affected amidst China-U.S. trade disputes, as the economy is highly exposed to global technology supply chain.

Moreover, inflation has been unexpectedly below expectations, while the Bank of Korea expects inflation to come below the target rate of 2 percent in 2018.

“As such, we believe that a rate hike is hardly on the table. All these illustrate a bearish backdrop for KRW – it has lost more than 1% versus USD so far this week, and we expect that KRW will remain soft over the foreseeable future”, added Commerzbank.

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