South Korea Country Risk Report

Providing comprehensive data and in-depth analysis of political, financial and economic risk.

Report includes: BMI's Core Views, 10-year Forecasts, BMI's Economic Risk Index, Political Stability and Risk Index, Long-term Political Outlook, Operational Risk Index, SWOT Analysis and Structural Economic Sections

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  • Benefit from 10-year macroeconomic forecasts and insight into the structural characteristics of the economy
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South Korea Country Risk Report
Product Price
$1,195.00

Core Views

  • Although the US and South Korea are likely to establish a working group to explore the deployment of the THAAD missile defence system in the latter country, Seoul is likely to postpone the actual introduction of THAAD, owing to Chinese opposition and concerns about a regional arms race. With parliamentary elections due on April 13, conservative South Korean politicians are likely talking up THAAD to bolster their support.

  • South Korea's 2015 real GDP growth came in at 2.6%, slightly higher than our forecast of 2.4%. We maintain our real GDP forecast for 2016 at 2.8% due to our expectations for only a modest pickup in economic momentum. High levels of household debt will undermine the government's plans to drive growth through domestic demand, while external demand is likely to remain weak due to the slowdown in the Chinese economy.

  • South Korea's stimulus package aimed at supporting growth by aiding exports and boosting domestic spending will have a limited effect on the country's growth, which will continue to be hampered by stiff export headwinds as well as high levels of household debt. With the stimulus mostly coming from policy bank lending, it is unlikely to have a significant impact on the government's 2016 fiscal deficit. However, we expect the central bank to cut interest rates to lend support to the government's initiatives, and now forecast a 25bps cut to 1.25% over the coming months.

  • The BoK kept its base rate steady at 1.50% following its February 16 monetary policy meeting, but we retain our forecast for the central bank to cut its base rate by 25bps to 1.25% over the coming months to support exports and the government's fiscal stimulus measures.

  • The South Korean won will weaken against the US dollar in the near term due to falling real interest rate expectations amid growing external headwinds and still subdued domestic demand. Accordingly, we have downgraded our 2016 end year KRW forecast to KRW1,270/USD from KRW1,200/USD previously. Over the long term, depreciatory pressures will be capped owing to a strong current surplus and large foreign exchange reserves, which reflect the won's slight undervaluation against the USD.

Major Forecast Changes

  • We have downgraded our 2016 end year KRW forecast to KRW1,270/USD from KRW1,200/USD previously to reflect falling real interest rate expectations amid growing external headwinds and still subdued domestic demand.

Key Risks

  • Downside Risks To Economic Growth Forecast: Should we see a sharper-than-expected downturn in the global economy or even an implosion in South Korea's household debt market, we would certainly expect to see a substantial weakening in its exports sector, which, in turn may push the economy into a pronounced recession.

  • Political Risks Rising: An increasingly belligerent North Korea poses a latent security threat, and any nuclear test could lead to a flare up of tensions on the Korean peninsula.

Macroeconomic Forecasts (South Korea 2014-2017)
Indicator 2014 2015e 2016f 2017f
National Sources/BMI
Nominal GDP, USDbn 1,410.3 1,353.9 1,273.8 1,342.7
Real GDP growth, % y-o-y 3.3 2.4 2.8 3.4
Consumer price inflation, % y-o-y, eop 0.8 1.3 1.8 2.0
Exchange rate KRW/USD, eop 1,090.98 1,175.06 1,270.00 1,240.00
Budget balance, % of GDP 0.6 -2.4 -2.9 -2.4
Current account balance, % of GDP 6.3 8.0 8.8 8.6
Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks
5
Chapter 1: Economic Outlook
7
SWOT Analysis
7
BMI Economic Risk Index
7
Economic Growth Outlook
8
Maintaining Growth Outlook Amid Export Headwinds
8
GDP By Expenditure Outlook
10
TABLE: GDP GROWTH FORECASTS
10
TABLE: PRIVATE CONSUMPTION FORECASTS
10
TABLE: GOVERNMENT CONSUMPTION FORECASTS
10
TABLE: FIXED INVESTMENT FORECASTS
10
TABLE: NET EXPORTS FORECASTS
11
Fiscal Policy And Public Debt Outlook
11
Frontloading Of Budget Will Have Limited Impact On Growth
11
Structural Fiscal Position
12
TABLE: MAIN SOURCES OF REVENUE & EXPENDITURE
12
Monetary Policy
13
Rate Cut Looming
13
Monetary Policy Framework
14
External Trade And Investment Outlook
15
KRW: Further Weakness In Store As Rate Cut Bets Rise
15
TABLE: CURRENCY FORECAST
15
Outlook On External Position
17
TABLE: MAIN IMPORTS AND EXPORTS
17
TABLE: MAIN IMPORT AND EXPORT PARTNERS
17
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
18
Chapter 2: 10-Year Forecast
19
The South Korean Economy To 2025
19
Slower Growth To 2025
19
TABLE: LONG-TERM MACROECONOMIC FORECASTS
19
Chapter 3: Political Outlook
23
SWOT Analysis
23
BMI Political Risk Index
23
South Korea Domestic Politics
24
THAAD Feasibility Studies Unlikely To Result In Rapid Deployment
24
TABLE: POLITICAL OVERVIEW
24
South Korea Long-Term Political Outlook
25
Constitutional Reform To Improve Governance-
25
North Korea Domestic Politics
27
A New North-South Korea Crisis In Spring 2016
27
TABLE: MAJOR EVENTS IN THE KIM JONG UN ERA
28
North Korea Long-Term Political Outlook
30
Status Quo Increasingly Unsustainable
30
Chapter 4: Operational Risk
33
SWOT Analysis
33
Operational Risk Index
33
Operational Risk
34
TABLE: OPERATIONAL RISK
34
Trade Procedures And Governance
35
TABLE: EXPORT AND IMPORT DOCUMENTS
35
TABLE: TRADE PROCEDURES BREAKDOWN
35
TABLE: ASIA - TRADE PROCEDURES AND GOVERNANCE RISK
36
Vulnerability To Crime
37
Chapter 5: BMI Global Macro Outlook
41
Global Macro Outlook
41
Tail Risks Mounting Amid Sub-Par Growth
41
TABLE: GLOBAL ASSUMPTIONS
41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
42
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%)
42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
43
TABLE: MACROECONOMIC DATA & FORECASTS
45

Assess your risk exposure in South Korea with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in South Korea with confidence.

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