South Korea’s service sector shows signs of easing

South Korea registered seasonally adjusted jobless rate of 3.5% in January, on par with consensus expectation of 3.4% and Barclays forecast of 3.5%. The jobless rate for December has been revised up by 10bp to 3.5%.  Job creation is services, mainly other services, indicated signs of easing in spite of increase in manufacturing hiring. Slowdown in other services job was highlighted by job losses in public administration and commerce, leading to a net 89k reduction in private sector services jobs. The easing in hiring in services sectors indicates that the broader service economy is slowing down after an extended period of weakness in consumer confidence.

Meanwhile, construction sector jobs also appear to have eased. Slowdown in that sector began from surge in property market in 2015. The number of unsold homes rose 52% y/y in December, while construction permits also declined sharply in Q4. Construction hiring is likely to face serious headwinds in coming months due to the sharp weakening in property demand.

South Korea's underlying trend is the same, marked by deteriorating external demand and easing domestic demand, mainly consumption. South Korea's growth momentum is likely to slow down due to the difficult export environment and sequential payback in private consumption in the first quarter of 2016. This increases the challenges of attaining the central bank's revised 3% growth target. The BoK is more concerned of the continuous trend of weak external demand, mainly from China.

"We maintain our forecast and expect the BoK to deliver another 25bp rate cut in March, ahead of the National Assembly elections in April. With the increasing focus on tackling weak exports, we continue to believe the incoming Finance Minister will continue to target a weaker KRW", says Barclays.