Korean economic growth is projected to be 2.5% in 2017

We slightly increased our forecast for Korean economic growth for this year from 2.1% to 2.5%. The main reason for the upward revision is development of Korean export thanks to the resilience of global economic growth. However, this year’s growth is 0.3%p lower than the previous year’s growth. Structural factors such as household debt, ageing problem and policy difficulties both are oppressing the growth to rebound resiliently than 2016. Moreover, US Fed’s federal funds rate hikes, ruling of global anti-globalism administrations are also possible to press further the Korean economy down.

Consumer prices and market interest rate of 2017 are predicted to rise marginally; while balance of payment is forecasted to sustain surplus status

CPI is predicted to record 1.6% over year ago in 2017. The upward trend of consumer price is projected to widen owing to the cessation of oil price dive and additional rise of public prices; however the level of rise is predicted to stop at about mid-1% thanks to the KRW appreciation and projected slowdown of economic growth. The balance of payment for this year would narrow down merely from US$98.7 billion to US$92.2 billion due to reduction of balance of goods and increase of service deficit. With the abundant dollar supply helped by the favorable export growth and the market’s vigilance upon Mr. Trump’s trade policy, KRW is projected to strengthen for the short run; however, the strengthening trend is forecasted to weaken at the yearend until 1,145 won (1.4% reduction year to year) owing to the US monetary and fiscal policy and uncertainty upon Europe politics. Corporate yield (AA-, 3yr) would rise only merely to 2.3% as low growth and inflation offsets the interest rate upbringing factors such as rise of US federal fund rate and KTB issuance.

US – China trade conflict may accelerate .. Thus, Korea should capture opportunities within

As Trump government is projected to use expanded fiscal policy, US trade deficit is forecasted to deteriorate further. Trade deficit between the trade partners can always grow to be issues to be tackled leading US government to adapt policy such as border tax adjustment. If US – China trade conflict envisages, global trade volume may alleviate again giving Korea substantial negative shock on export side. We suggest that Korea prepares this circumstance by export market diversification, participating Chinese One Belt One Road and US infrastructure investment, and propelling RCEP.

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