South Korea: Heightened downside risks

by: Maritza Cabezas

Since Ms Park took office on 25 February, she has been confronted with a number of developments that have increased the downside risks to a stronger growth scenario in 2013. However, data released in March showed that the pace of Korea’s economic slowdown was less pronounced, while consumer price inflation has picked up slightly, indicating the downward acceleration could be over. Still, political tensions with North Korea and monetary easing in Japan could require additional stimulus to support economic activity. We think there will be a 25bp rate cut in the first half of this year and that there will be a bias for fiscal stimulus. Our forecast for GDP growth has been revised down to 3.0% from 3.5% in 2013. This is the result of a delayed recovery, with consumption showing more weakness than expected.