South Korea’s economic outlook to rebound gradually in following quarters

In the following quarters the prospect of South Korean economy is expected to rebound slowly; however, the slack in world trade is likely to negatively impact the economy, according to Scotiabank. In Q4 2015, the South Korean economy grew 0.7% q/q and 3.1% y/y. Net exports remain a drag on the economic growth, while domestic demand continue to be strong.

Exporters of the nation are expected to face challenges from weaker Chinese demand and rise in competition from China’s manufacturers, noted Scotiabank. Monetary and fiscal stimulus measures underpin consumer spending; however, high consumer debt burden is likely to constrict private consumption growth slightly.

“We expect that the nation’s real GDP growth will average 2.9% y/y over the next two years, following a 2.6% gain in 2015”, added Scotiabank.

Meanwhile, South Korea’s monetary conditions are expected to remain favorable to economic activity. The Bank of Korea has maintained the interest rate at 1.5% since June 2015. It is expected to continue with accommodative monetary conditions for a longer period. The central bank is likely to normalize its monetary policy gradually in H2 2017 as inflationary pressures build up slowly, noted Scotiabank.

“We expect to see a modest pick-up in price pressures over the coming months and the annual inflation rate will likely reach around 1⅔% by the end of the year, remaining below the BoK’s 2% inflation target for 2016-18”, said Scotiabank.