South Korean economy expanded 3% y/y in Q4 2015. The economic growth continues to be slow. Moreover, global demand is deteriorating and domestic demand is showing signs of weakness. According to BBH, Korean economic growth in 2016 and 2017 is likely to be around 3%, nearly the same as in 2013-2015.
Stalled government stimulus and global economic slowdown are expected to strengthen the risks on the downside to growth projections, added BBH. Headline CPI of South Korea was at 1.3% y/y in February, lower than the target range of 2.5-3.5%, due to sluggish growth and lower oil prices. Core inflation was low at 1.8% y/y in the same months, lowest since December 2014.
Meanwhile, the Korean central bank has maintained rates at 1.5% since June 2015. However, the Bank of Korea is expected to consider lowering rates in 2016 after cutting inflation and growth outlook, says BBH. But the central bank has become wary due to the recent depreciation of the won. The external accounts have remained strong. Meanwhile, imports have been reduced with the help of lower oil prices, countering downward pressure on exports.
“The current account surplus is seen at around 7% of GDP in both 2016 and 2017, down slightly from 8% in 2015”, says BBH.
External accounts are expected to remain strong and low inflation pressures are likely to continue, both supporting the Korean won.
