South Korean economy likely to post slow growth rate in 2015-16

South Korea's H1 soft patch extended well into Q3. Exports came under further pressure in July and August, as more weakness was seen in China and broader EM. With Q3 GDP growth likely to be below 1% q/q (Q2: 0.3%; Q1: 0.8%).

"We lower our full year 2015 forecast by 30bp to 2.3% (BoK: 2.8%; MOSF: 3%). We also cut our GDP growth forecast for 2016 to 3% (from 3.7%; BoK: 3.3%) to reflect the recent downgrades in our China forecasts. We expect the Bank of Korea to deliver a 25bp rate cut in Q4, most likely in October, which would be around the release of the Q3 GDP report and the BoK's scheduled review of the economy", estimates Barclays.

To engineer more support for exporters, the weak KRW bias is expected to intensify in the coming months. Given that the KRW REER remains close to its 20-year average, the government is assumed to continue to encourage state entities to recycle the current account surplus abroad by stepping up overseas loans and investments, or by stockpiling essential minerals and fuels, added Barclays.