BMI View: We envisage the outperformer in South Korea's freight mix to be road freight in 2015, growing by a healthy 4.00%. This is down on 2014's estimate, however as domestic demand for goods drops this year. We expect to see steady, if uninspiring growth in both the rail and air freight modes in 2015 (2.50% and 1.52% respectively), as moving further into 2015, South Korea will face an increasingly challenging external environment with the falling Japanese yen (relative to the Korean won) leading to increased competition with Japanese producers; Korean and Japanese companies are major rivals in the global export market.
With both the domestic and global outlook remaining weak, we have downgraded our real GDP forecast for 2015 to 3.1% from 3.5% to reflect persistent weaknesses in Korea's main trading partners along with relatively anaemic domestic sentiment. Key trade partners will continue to be China and Japan (in terms of both imports and exports) and total trade will grow 2.15% in real terms in 2015, with exports outperforming imports (2.50% compared to 1.80%, respectively). Meanwhile, the Park Geun-hye government has been actively seeking to strengthen trade links with the rest of the world while expressing its interest in joining the Trans-Pacific Partnership.
Over 2015, we expect the road freight sector to record the strongest performance, which although the outperformer is down on 2014, 2013 and 2012 as consumer demand drops due to debt-laden South Koreans scaling back their spending. Although slower than the previous three years, year-on-year (y-o-y) growth in 2015 will be a healthy 4.00%. Our bearish outlook regarding the Korean economy in 2015 is informed by unfavourable internal and external circumstances that will weigh on both domestic consumption and exports over the course of the year.
External headwinds and a slowdown in domestic private consumption will temper the growth in Korean auto sales in 2015, while imported car brands will continue to outperform, highlighting why we expect annual tonnage growth in the rail freight sphere to be fairly static compared to 2014's figure. That said, this should be offset by demand for iron and steel, which will grow due to the boost to construction that the 2018 Winter Olympics. The Games should trigger a construction boom in South Korea, with most of the activity originating in the commercial construction sector.
The slowest rate of growth across all of the modes will occur in the air freight sector, based on the fact key trade partner China is set to see slowing consumer demand, resulting in exports of consumer electronics from South Korea potentially being hit as consumer spending on these types of products lessens as the average Chinese person tightens their belt somewhat. We also expect the South Korean consumer electronics market to plateau in terms of market value over the medium term, influencing our forecasts for air freight as a result.
Key BMI Forecasts
We forecast total road freight volumes will rise by 4.00% y-o-y over 2015 to reach 847.49mn tonnes.
We forecast total rail freight volumes will increase by 2.50% y-o-y over 2015 to reach 41.76mn tonnes.
We forecast total air freight volumes will rise by 1.52% y-o-y over 2015 to reach 3.63mn tonnes.
We forecast total trade value to grow by 2.15% y-o-y to reach USD1.34trn.
The top trade partners will be China, the US, Japan, Saudi Arabia and Hong Kong.