South Korea’s industrial production likely declined again in February

South Korea is due to release its production and trade data this week that is expected to remain dull, according to DBS Bank. Currently, the Korean economy is being challenged by slowdown in growth. Since the beginning of 2016, external demand has dropped because of uncertainties in global financial markets. This has led to worsening of business confidence and weakness in global trade. Korea’s domestic growth has also slowed down as impacts of stimulus of the previous policy easing began to disappear.

“Industrial production is expected to drop -0.5% (MoM sa) in Feb16 on top of the -1.8% decline in Jan16. Meanwhile, exports are expected to continue falling sharply by -13.4% (YoY) in Mar, a similar magnitude of decline compared to the average of -15.6% in Jan-Feb”, says DBS Bank.

The decline in industrial production will be consistent with the manufacturing PMI contraction and decline in inventory ratios in the past few months. Meanwhile, even if import prices of oil have increased, domestic price pressures are expected to remain subdued following a labor market slack and negative output gap, according to DBS Bank.

“Headline and core CPI are projected to remain basically stable in Mar, at 1.4% and 1.7% respectively”, says DBS Bank.

The South Korean GDP growth is likely to decline to 1% q/q saar in Q1 2016, urging the Bank of Korea to cut its forecasts for entire 2016 growth and lower rates in April’s meeting, added DBS Bank. If the data to be released confirms the case of a considerable deceleration of growth in Q1, the possibility will be high for a rate cut, whereas a below-expected slowdown will cut the urgency to lower rates, says DBS Bank.