Korea’s growth outlook remained in the mid-2 percent range, it will not likely to show a significant rebound in 2016

Korea’s economy is expected to growth 2.6% in 2016 following this year’s growth rate of 2.5% and stay in L-shaped trajectory, mainly due to sluggish exports, the possible aftermath of the U.S. interest rate hike as well as few options on hand for the government to boost domestic consumption. Also, China’s slowdown is likely to exacerbate the weakness in Korea’s export growth. In turn, export is expected to grow by a mere 0.9%, and sluggish private consumption will be continued in 2016.

Consumer prices growth is projected to edge up to 1.5% in 2016

Consumer prices is forecast to show a modest uptrend owing to stabilization of international oil prices, an expectation of appreciation of USD/KRW, changes in domestic price stabilization schemes (strengthening of the role of the BOK in monetary policy, monitoring both real and nominal growth rates etc.)

Current account surplus is expected to fall by a small margin; US$9.36 billion from US$101.1 billion in 2015

Current account surplus is forecast to continue heavy recession-type surplus in 2016. Nevertheless, a decline in the surplus on balances of goods and an increase in the deficit on balances of services will likely cut current account surplus slightly. USD/KRW is expected to show a gradual depreciation at yearly average of 1,131 won in 2015 and 1,158 won in 2016 due to the continued ascending pressure from strong-dollar and the further devaluation of yuan.

Must target China’s domestic market, promote R&D through selection and concentration and reorganize businesses quickly and efficiently

Not only has the current economic downturn worsened exports conditions for Korea, but also structural factors. Specifically, Korea-China trade complementarities index dropped from 0.524 to 0.348 in the past decade, and Korea-China export similarity index in the U.S. market increased from 0.533 to 0.592 for the same period. Thus, a recovery in China’s exports will not likely lead Korea’s exports to rebound with Korea’s major exports unchanged. Under the worsened exports conditions, it is unavoidable to Δ target China’s domestic market through outbound M&A activity in China, Δ implement an appropriate exchange rate policy to maintain optimal level of won·yen and won·yuan exchange rate, Δ promote R&D through selection and concentration and Δ push forward a reorganization of business quickly and efficiently.

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