South Korea: Recovery hopes look premature – Standard Chartered

Economists at Standard Chartered Bank expect Korea to recover faster than most economies, but optimism may be overdone. Earlier in the week, a South Korean state-run think-tank, said the BoK needs to cut its benchmark interest rates to near-zero to stimulate the economy. The USD/KRW pair is sitting at 1,239.79, near to monthly highs.

Key quotes

“We think market optimism on Korea’s recovery is premature as macroeconomic data lags the shock to the real economy. We maintain our view that GDP will contract 0.6% in 2020.” 

“We lower our Q2 growth forecast to -1.8 q/q from -1.5% to reflect much weaker-than-expected export growth and facility investment. In y/y terms, we now forecast Q2 growth at -1.6% versus -1.8% previously; we lower our growth forecasts for Q3 and Q4-2020. Korea Development Institute (KDI), a government think tank, expects positive growth of 0.2% for 2020.”

“We think rate cuts are needed to support the economy. We expect the BoK to cut its base rate on 28 May; we also expect it to lower its 2020 GDP growth forecast from 2.1% to 0.2%. However, we see a rising risk that the cut may be delayed until July.”