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Political uncertainty likely to hold back economic activity in Korea until new President comes in place, says Fitch Ratings

Political uncertainty is likely to hold back economic activity until a new president is elected. Uncertainty will delay investment and weigh on consumer confidence. In December 2016, consumer confidence fell to levels not seen since 2009.

Korea’s economy grew at a decent rate of 2.7 percent in 2016, though more slowly than what was anticipated in the last GEO (+2.9 percent). GDP growth was supported by strong government spending and by construction activity growing at unprecedented levels of 11 percent.

Furthermore, the bank lending survey has pointed to a marked deterioration in banks’ willingness to lend, which should weigh on credit growth in the months ahead. House price inflation is also slowing, but so far high-frequency data on building permits are not really pointing to any impending slowdown in construction activity. Corporate restructuring, notably in the shipbuilding industry could weigh on non-construction investment, Fitch Ratings reported.

The construction boom has been fuelled by low interest rates and the relaxation of home-loan restrictions in 2014. Indeed, household debt grew at a strong 11.7 percent y/y in 4Q16.

"We do not expect political disruption to severely affect economic activity in the medium term, but Korea could be significantly impacted by a more protectionist world given the highly open nature of the economy," the report said.

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July 26 14:00 UTC Released

USNew Home Sales Chg MM*

Actual

0.8 %

Forecast

1.4 %

Previous

2.9 %

July 26 14:00 UTC Released

USNew Home Sales-Units*

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0.610 mln

Forecast

0.615 mln

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0.610 mln

July 26 15:30 UTC 4545m

JPForeign Exchange Flows*

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-2.949 bln

July 26 15:30 UTC 4545m

BRForeign Exchange Flows*

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-2.949 bln

July 26 15:30 UTC 4545m

BRForeign Exchange Flows*

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Forecast

Previous

-2.949 bln

July 26 18:00 UTC 195195m

USFed Funds Target Rate

Actual

Forecast

1.125 %

Previous

1.125 %

July 26 23:00 UTC 495495m

KRNew Home Sales-Units*

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Forecast

2.7 mln

Previous

2.9 mln

July 26 23:00 UTC 495495m

EZGDP Growth QQ*

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0.6 %

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1.1 %

July 26 23:00 UTC 495495m

EZGDP Growth YY*

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Forecast

2.7 %

Previous

2.9 %

July 26 23:00 UTC 495495m

KRGDP Growth QQ*

Actual

Forecast

0.6 %

Previous

1.1 %

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