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Robert Carnell, chief economist at ING, points out that the Korea witnessed its biggest quarterly contraction in GDP since the global financial crisis hit in 4Q 2008 as the year-on-year growth of 1.8% doesn’t look too bad, but the components of GDP weakness don’t bode well for the quarter ahead.

Key Quotes

“It isn’t hard to come up with a set of figures for 2Q19 that would deliver a further decline and as a result, a technical recession.”

“The last Bank of Korea policy meeting just over a week ago left rates unchanged at 1.75%. The last change in BoK policy was as recent as November 2018, when they raised rates by 25bp, based on a not terribly convincing argument of high Seoul house prices and high household debt. The most recent meeting trimmed GDP growth forecasts for 2019 slightly to a “mid-2%” level from 2.6% at the January projection. To come even close to this will need (non-annualised) QoQ growth of more than 1% in every quarter until the year-end. In our view, that is simply not going to happen. In response to these latest figures, we think GDP growth for 2019 will do well to exceed 1.5%, which is our new full-year forecast and one that comes pre-loaded with plenty of downside risk.”

“Our 2Q19 forecast of USDKRW 1150 has now been smashed with 1160 reached today. We had a 3Q forecast of 1150 too. Both now seem too optimistic, though these forecasts were already at the very gloomiest end of consensus until recently. USD/KRW 1180 seems like a sensible mid-term target for the time being, and we will come up with a more thoughtful quarterly profile shortly.”