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
  • Get the long-term political outlook and explore possible scenarios for change
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South Korea Country Risk Report
Product Price
$1,195.00

Core Views

  • Outgoing UN Secretary-General Ban Ki-moon is emerging as the de facto frontrunner for South Korea's December 2017 presidential election, as the conservative ruling Saenuri and centre-left liberal parties are struggling to find plausible candidates amid severe internal rifts. Meanwhile, President Park Geun-hye's deteriorating relationship with Saenuri is accelerating her descent to lame duck status, which will impede her ability to pass economic reforms and host the US's THAAD missile defence system.

  • We are downgrading South Korea's 2016 real GDP forecast slightly to 2.6% from 2.8% previously despite the economy's stronger than expected expansion of 3.0% in H116. This is to reflect mounting headwinds from the restructuring of the shipbuilding industry and the spillover effect this will have on the broader economy. In addition, ongoing weakness in the Chinese economy and high levels of youth unemployment will continue to weigh on growth.

  • South Korea's supplementary budget aimed at supporting growth and ongoing restructuring efforts of the country's main shipbuilders will be unable to sufficiently mitigate the broader economic slowdown. With downside risks to growth rising, we expect the central bank to cut interest rates to support the government's initiatives, and now forecast a 25bps cut to 1.00% for its base rate over the coming months. At the same time, we note that the stimulus is unlikely to have an impact on the government's 2016 headline fiscal deficit, with funding being provided by state-owned institutions.

  • The BoK kept its base rate steady at 1.25% following its August 11 monetary policy meeting, but we retain our forecast for the central bank to cut its base rate by 25bps to 1.00% over the coming months to support government fiscal measures and exports against a backdrop of low inflation.

  • We are revising our average 2016 forecast for the KRW to average KRW1,180/USD from KRW1,200/USD previously to reflect US dollar weakness since late-February, but note that short-term techncials do not bode well for the currency. Over the long-term, South Korea's strong fundamentals such as a high current account surplus, modest inflation, and relatively robust growth will support the won, allowing gradual appreciation.

Major Forecast Changes

  • We have upgraded our 2016 average KRW forecast to KRW1,180/USD from KRW1,200/USD previously to reflect KRW strength.

  • We have downgraded our 2016 real GDP growth forecast to 2.6% from 2.8% to reflect mounting headwinds.

  • We now expect the BoK to cut its base rate by an additional 25bps to 1.00%, versus our previous forecast for the central bank to hold rates at 1.25%.

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 2015 2016f 2017f
National Sources/BMI
Nominal GDP, USDbn 1,410.3 1,377.7 1,371.0 1,447.0
Real GDP growth, % y-o-y 3.3 2.6 2.6 3.0
Consumer price inflation, % y-o-y, eop 0.8 1.3 1.5 1.6
Exchange rate KRW/USD, eop 1,090.98 1,175.06 1,200.00 1,180.00
Budget balance, % of GDP 0.6 0.0 -1.2 -0.8
Current account balance, % of GDP 6.4 7.9 8.2 8.0
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
Economic Growth To Remain Subdued
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
Tax Crackdown To Provide Slight Revenue Boost
11
Structural Fiscal Position
12
TABLE: MAIN SOURCES OF REVENUE & EXPENDITURE
13
Monetary Policy
13
Rate Cut A Matter Of Time
13
Monetary Policy Framework
15
Currency Forecast
15
KRW: Neutral Short-Term, Appreciatory Bias Thereafter
15
TABLE: SOUTH KOREA CURRENCY FORECAST
16
Outlook On External Position
17
TABLE: MAIN IMPORTS AND EXPORTS
17
TABLE: MAIN IMPORT AND EXPORT PARTNERS
17
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
17
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
Divided Parliament Will Be Negative For Growth
24
TABLE: POLITICAL OVERVIEW
24
South Korea Long-Term Political Outlook
27
Constitutional Reform To Improve Governance-
27
North Korea Domestic Politics
29
Defections Jump In Q1; Sustained Rise Would Be Destabilising
29
TABLE: NORTH KOREAN DEFECTORS SINCE 2001
29
North Korea Sort-Term Political Outlook
30
Party Congress Signals Continuity Over Rapid Reform
30
North Korea Long-Term Political Outlook
32
Status Quo Increasingly Unsustainable
32
Chapter 4: Operational Risk
37
SWOT Analysis
37
Operational Risk Index
37
Operational Risk
38
TABLE: OPERATIONAL RISK
38
Economic Openness
39
TABLE: TOP 5 TRADE PARTNERS - PRODUCT IMPORTS, USDMN (2010-2014)
39
TABLE: FREE TRADE AGREEMENTS
40
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
41
Availability Of Labour
45
TABLE: AVAILABILITY OF LABOUR RISK
46
TABLE: LABOUR FORCE EMPLOYMENT BY SECTOR ('000), 2009-2013
47
TABLE: TOP 10 MIGRANT SOURCES BY COUNTRY
48
Chapter 5: BMI Global Macro Outlook
51
Global Macro Outlook
51
Summer Of Risk
51
TABLE: GLOBAL ASSUMPTIONS
51
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
52
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
53
TABLE: MACROECONOMIC DATA & FORECASTS
55

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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