South Korea Country Risk Report

Published 25 March 2015 | Quarterly

  • 56 pages
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$1,195.00
South Korea Country Risk Report

Core Views

  • While we remain relatively constructive on South Korea's economic growth in 2014, as we expect real GDP growth to accelerate to 3.0% from 2.8% in 2013, our forecasts are fairly below consensus. We highlight growing risks from Corporate Korea as an increasing number of chaebols, particularly within the construction sector, are succumbing to the prolonged slump in the domestic real estate sector. Additionally, a slowdown in China's economy, and the ensuing drag on the Korean economy, is very much on the cards

  • While the prescribed targets laid out in South Korea president Park Geun-hye's economic reform plan may appear overly ambitious, the proposed drive towards deregulation and support of the services sector, if realised, will provide the Korean economy with new pillars of economic growth and set the country on a more sustainable path of economic expansion. Also, the planned pullback the public sector's involvement in the economy will aid not just in growth of the private sector, but also help to improve the government's fiscal profile.

  • We are not particularly sanguine towards the Korean won's performance in 2014. We are forecasting the unit to average KRW1,120/US$ through 2014 before ending the year at KRW1,150/US$. Not only do we envision a weaker macro outlook in the coming year, but we also believe the strength in the currency is likely to reverse course as the relative attractiveness of other regional currencies that took a beating in the previous months start to gain traction once again.

  • South Korean president Park Geun-hye's push to increase the country's global free-trade agreement share is largely a positive for the country. An expansion in trade volumes and increased investment will provide strong support for Korean exporters, even as Seoul attempts to carve out a more consumption-driven economy. We believe that tighter economic relations between Northeast Asian countries would also help foster a more stable political environment.

Table of Contents

Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
South Korea Domestic Politics
8
Political Compromise To Bolster Business Confidence
8
The compromise between the ruling Saenuri party and opposition New Politics Alliance for Democracy over the passing of the Sewol
The compromise between the ruling Saenuri party and opposition New Politics Alliance for Democracy over the passing of the Sewol
special bill will improve business confidence
However, we note that other contentious issues pose risks to the smooth functioning of
parliament
TABLE : Political Overview
8
South Korea Long-Term Political Outlook
9
Constitutional Reform To Improve Governance-
9
South Korea is likely to see a renewed push for constitutional change in order to address imbalances in the political system that lead to
South Korea is likely to see a renewed push for constitutional change in order to address imbalances in the political system that lead to
periodic instability
In addition, owing to the single-term restriction on the presidency, most presidents typically become 'lame ducks' well
before departing office, leaving the country in a state of drift
North Korea Domestic Politics
11
Domestic And Foreign Policies To Remain Volatile
11
North Korea's domestic and foreign policies will remain volatile over the coming months, as the power struggle between groups around
North Korea's domestic and foreign policies will remain volatile over the coming months, as the power struggle between groups around
leader Kim Jong Un continues, and Pyongyang seeks to reduce its isolation
North Korea Long-Term Political Outlook
13
Status Quo Increasingly Unsustainable
13
Although North Korea's regime has proved much more durable than many expected, it is becoming increasingly difficult to see how the
Although North Korea's regime has proved much more durable than many expected, it is becoming increasingly difficult to see how the
country can avoid dramatic change over the course of the next 10 years
Chapter 2: Economic Outlook
17
SWOT Analysis
17
BMI Economic Risk Index
17
Economic Activity
18
Growth Headwinds To Persist
18
Our expectations for continued weakness in South Korea's economy following Q314 figures have prompted us to revise our forecast for
Our expectations for continued weakness in South Korea's economy following Q314 figures have prompted us to revise our forecast for
2015 downwards from 4
Though domestic consumption has recovered slightly, we expect weak global demand to continue
presenting headwinds to Korean exports, while high levels of household debt will constrain domestic consumption
TABLE: Economic Activity
18
Fiscal Policy
19
2015 Budget: Fiscal Discipline Fast Fading
19
Korea's larger 2015 budget reflects the government's pro-growth stance and will result in short-term fiscal strain
We believe that the
long-term impact will be minimal but note that challenges remain
TABLE: Fiscal Policy
20
Monetary Policy
21
BoK To Maintain Policy Stance Through 2015
21
The Bank of Korea held its base rate at 2
We forecast rates to remain on hold
for the rest of 2014 and through 2015 due to subdued growth and falling inflation expectations, but cannot rule out a possible rate cut
for the rest of 2014 and through 2015 due to subdued growth and falling inflation expectations, but cannot rule out a possible rate cut
should domestic consumption remain persistently weak
TABLE: Monetary Policy
22
Currency Forecast
23
KRW: Near-Term Weakness Prompts Downgrade
23
We have downgraded our Korean won end-year forecast for 2014 and 2015 to KRW1,100/USD from KRW1,000/USD to reflect the
We have downgraded our Korean won end-year forecast for 2014 and 2015 to KRW1,100/USD from KRW1,000/USD to reflect the
increasingly bearish technical picture and the risks posed by the ongoing weakness in the Japanese yen
Over the long-term, strong
fundamentals, particularly the large current account surplus, will provide support for currency strength
TABLE: CURENCY FORECAST
23
TABLE: Current Account
24
Chapter 3: 10-Year Forecast
25
The South Korean Economy To 2023
25
Robust Growth To 2023
25
We expect annual real GDP growth in South Korea to decelerate marginally from an average of 4
4% between 2001 and 2008 to around
4
While we see many of South Korea's traditional exports meeting fierce competition in the coming years from
emerging Asia, we believe that underlying conditions within the country are conducive to a move up the production value chain, ensuring
emerging Asia, we believe that underlying conditions within the country are conducive to a move up the production value chain, ensuring
a robust economic growth profile
TABLE: Long-Term Macroeconomic Forecasts
25
Chapter 4: Operational Risk
29
SWOT Analysis
29
Operational Risk Index
29
Operational Risk
30
TABLE: Operational Risk
30
Transport Network
31
TABLE: Asia Transport Network Risks
32
Economic Openness
35
TABLE: Asia - Economic Openness
36
TABLE: Top 5 Products Exported (USDmn), 2007-2013
37
TABLE: Top 5 Trade Partners Product Imports (USDmn), 2007-2013
38
Chapter 5: Key Sectors
39
Infrastructure
39
TABLE: Infrastructure & Construction Industry Data
40
TABLE: Infrastructure & Construction Industry Data
41
Oil & Gas
44
TABLE: Oil Production
44
TABLE: Oil Production
44
TABLE: Gas Production
45
TABLE: Gas Production
45
Other Key Sectors
49
Table : Phar ma Sector Key Indicators
49
Table: Defence & Security Sector Key Indicators
49
Table: Telecoms Sector Key Indicators
49
Table: Food & Drink Sector Key Indicators
50
Table: Autos Sector Key Indicators
50
Table : Freight Key Indicators
50
Chapter 6: BMI Global Assumptions
51
Global Outlook
51
Warning Signs Growing
51
Table: Global Assumptions
51
Table : Developed States , Real GDP Growth, %
52
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
52
Table : Emerging Markets , Real GDP Growth , %
53

The South Korea Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in South Korea. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of South Korea's economic, political and financial prospects through end-2019, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of South Korea's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise South Korea's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in South Korea, including currency volatility, the commodity price boom and protectionist policies.

The South Korea Country Risk Report by Business Monitor International (BMI) includes four major sections: Economic Outlook, Political Outlook, Operational Risk and Key Sector Outlook.

Economic Outlook:

How will the South Korea' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for South Korea through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The South Korea Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for South Korea and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on South Korea, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in South Korea over the next 5-years?

BMI's South Korea country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the South Korea Market - Political Strengths, Weaknesses, Opportunities and Threats facing South Korea.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for South Korea's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of South Korea’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark South Korea's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in South Korea?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks South Korea against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:

  • Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
  • Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
  • Evaluate South Korea’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.

Key Sector Outlook*

Which industry sectors in South Korea will grow fastest, and where are the major investment opportunities in the market?

BMI identifies investment opportunities in South Korea's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

*Not all Country Reports contain the Key Sector Outlook chapter. Please enquire above for more information.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express