July 27, 2015

Korea and Won – Under Stress Tests

The economy expanded by 2.2% in 2Q vs 2.5% in 1Q. High frequency indicators point to modest outcomes, particularly in the near term.

Key Points

  • Q2 GDP came in lower than expected at 2.2% yoy vs 2.5% in 1Q. NAB Economics maintains a 2.5% GDP outcome in 2015, followed by 2.9% in 2016.
  • A closer assessment on merchandise exports shows intensifying competition from Japan, as well as China. In the long run, overall structural soundness of the external sector may be protected by services industry.
  • In the near term, rate cut expectations may rise as the Finance Ministry tightens mortgage loan screening.
  • FX strategy is long USD/KRW 6M NDF and in light of recent price actions, revises the stop higher to 1130. USD/KRW is forecast to end 2015 at 1180.

For a full analysis, download our report.