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

  • South Korea's ruling Saenuri party suffered a significant defeat in the parliamentary elections held on April 13. With no party securing a majority, the liberal opposition People's Party has emerged as a kingmaker. As such, we expect the lack of a parliamentary majority to have a negative impact on the economy and note that this could hasten President Park Geun-hye's descent to lame duck status. The economy is also likely to continue to face headwinds as bills aimed at revitalising growth languish in parliament. Accordingly, we have downgraded our short-term political risk index score to 76.0 from 79.6 previously to reflect these challenges.

  • The economy grew by 2.7% y-o-y in Q116 compared to the 3.1% expansion registered in the previous quarter. Ongoing weakness in the Chinese economy amid the increasing possibility of a political stalemate in parliament will continue to weigh on Korea's economic growth. As such, we note that the downside risks to our 2016 real GDP forecast of 2.8% are rising.

  • Seoul's clampdown on tax evaders bodes well for the government's attempts to enhance its revenue base as spending on welfare increases as the population ages. However, merely cracking down on tax evaders will be insufficient as the government's debt rapidly approaches the mandated legal debt ceiling, reducing Seoul's ability to impose fiscal measures. The implementation of stricter tax laws will also have a slightly negative impact on the business environment in the near term.

  • The BoK kept its base rate steady at 1.50% following its May 13 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 against a backdrop of low inflation.

  • The South Korean won has benefitted against a backdrop of US dollar weakness since late-February, and we are revising our average 2016 forecast on the currency stronger to KRW1,200/USD, from KRW1,255/USD previously to reflect this. Over the long-term, South Korea's strong fundamentals such as a solid current account surplus, modest inflation, and relatively robust growth will support the won, allowing it to embark on a gradual appreciatory trend from 2017.

Major Forecast Changes

  • We have upgraded our 2016 average KRW forecast to KRW1,200/USD from KRW1,255/USD previously to reflect KRW strength.

  • We have downgraded our short-term political risk index score to 76.0 from 79.6 previously to reflect the loss of the parliamentary majority by the ruling Saenuri party.

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 1,296.2 1,361.1
Real GDP growth, % y-o-y 3.3 2.6 2.8 3.0
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 0.0 -1.2 -0.8
Current account balance, % of GDP 6.4 7.9 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
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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