Korea’s growth outlook revised down further by 0.3%p, from 2.7% to 2.4%, and economic growth projection for 2016 is 2.6%

Korea’s economy is forecast to remain at early 2% level in 2016, resulting from sluggish consumption with an aging society, growing household debt and worsened export conditions mainly attributable to China’s slowing growth and its devaluation of yuan. The growth projection of private consumption and export (BOP basis) are 1.9% and 3.9%, respectively.

Consumer prices growth is projected to decline to 0.8% this year, edge up to 1.5% in 2016

Despite a stabilization of international oil prices with an expectation of modest appreciation of USD/KRW, consumer prices are expected to remain low as domestic aggregate demand shows continued sluggishness.

Current account surplus expected to reach a record US$105.4 billion this year, $102.2 billion in 2016; USD/KRW projected at 1,136 won for 2015, 1,158 won for 2016

Current account surplus is forecast to post a large growth through 2016 influenced by continuing recession-type surplus as the decline in imports outpaces the decline in exports. USD/KRW is expected to a gradual depreciation at a yearly average of 1,136 won in 2015, 1,158 won in 2016 due to the continued ascending pressure from strong-dollar and the devaluation of yuan.

Economic impact of China’s slowdown economy is greater than that of the U.S. Fed’s interest rate hike

The economic impact of the slowdown in China is estimated to be greater than that of the U.S. Federer Reserve Bank’s interest hike. Since China is likely to devalue again, it is necessary to keep adequate JPY/KRW and CNY/KRW currency rates in order to prevent a further drop in exports owing to China’s additional devaluation. The Chinese economy seems to enter a stage of a “new normal” so-called “Xin chang tai” as benefits from a population bonus reduce and investment driven growth policy strikes the limit. It is hereby unavoidable to prepare for the Chinese low price attack as a result of its industrial restructuring and to develop strategies for entering the Chinese market, especially service, infrastructure industries and final goods market.

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