South Korea: 1Q19 GDP was bad – ING

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.”