Economics South Korea chart book Pre-emptively dovish Group Research 5 September 1 Ma Tieying Economist Please direct distribution queries to Violet Lee +5 751 violetleeyh@dbs.com Charts of the month Exports have remained solid as of August, but domestic demand is softening and the labour market is losing momentum, which raises concerns about the growth outlook. Inflation has remained stable, but core CPI is slipping due to weak domestic demand and the subsidy effects. Capital outflows are not a big worry. KRW and KTBs stayed resilient during the recent EM sell-off. The government is pushing for fiscal stimulus, again, to create jobs and shore up the economy. We no longer expect any rate hike from the Bank of Korea within this year. South Korea: Labour market indicators YoY sa, thou persons 5 Unemployment rate (RHS) Labour force Employment % sa. 3. 3. South Korea: Inflation CPI 3 Core CPI PPI (RHS) 1 3. 3. 1 - - 1 17 1 3. 1 13 1 15 1 17 1 - Refer to important disclosures at the end of this report.
South Korea chart book Pre-emptively dovish 5 September 1 High-frequency indicators Exports Overall export growth remained solid at.7 in August, a steady pace compared to.% in July and faster than the 3.% averaged in Q. Exports to China slowed to.% in August from 7.3% in July, but mainly due to the high base. Given that Chinese exporters/importers tend to front load shipments before the US tariffs take effect, the adverse impact of US-China trade war may only emerge starting from Q. South Korea: Export growth 3 5 15 1 3mma 5-5 -1-15 - 1 13 1 15 1 17 1 South Korea: Exports to China 35 Value (RHS) Growth 5 15 5-5 -15-5 1 17 1 15 1 13 1 11 1 9 Semiconductor exports maintained stable growth in August and flat panel exports showed a pickup, an early sign indicating the arrival of peak season demand. Industrial production and manufacturing PMI continued to move sideways in July/August. South Korea: Electronics exports Semiconductors, value (RHS) Flat panels, value (RHS) Semiconductors, growth Flat panels, growth 1 1 South Korea: Industrial production & PMI Index, 5=neutral 1 Manufacturing PMI (RHS) 55 Industrial production 1 5 5 - -5-1 17 1-1 1 17 1 5 Page
South Korea chart book Pre-emptively dovish 5 September 1 High-frequency indicators Domestic demand Retail sales remained solid at. in July. But consumer confidence fell further, below the neutral 1 level for the first time over 17 months. Services output growth decelerated and construction output contracted, another evidence indicating the softening of domestic demand. South Korea: Retail sales & Consumer confidence 1 Consumer confidence (RHS) Retail sales points 115 11 15 1 95 South Korea: Services & Construction output Services Construction (RHS) 3 5 15 1 5-5 - 1 17 1 9-1 17 1-1 The labour market lost momentum. Unemployment rate rebounded to 3.% in July from 3.7% in June. Employment growth (1k YoY in Jan-Jul) fell short of the government s job creation target (1k) by a wide margin. The government is, again, pushing for fiscal stimulus to create jobs and shore up the economy. The finance ministry has proposed a record KRW7.5tn budget for FY19 the largest expenditure increase since the GFC. South Korea: Labour market indicators YoY sa, thou persons 5 1 Unemployment rate (RHS) Labour force Employment 1 17 1 % sa. 3. 3. 3. 3. 3. South Korea: Consolidated government budget % of GDP 1. -.5-1. -1.5 - - Revenues -. - Expenditures - Net balance (RHS) -.5-1 -3. 1 17 1 19 Note: Figures include supplementary budgets. Page 3
South Korea chart book Pre-emptively dovish 5 September 1 Monetary CPI inflation remained stable at 1. in August, while core CPI dipped to.9%. The surge in food prices during the hot summer this year was offset by the lowering of electricity tariffs. CPI is still likely to rise to 1.7% in Q due to higher upstream costs, but core CPI may continue to hover around 1% amidst soft domestic demand. Housing prices gained a modest 1. in August, despite the rally in the Seoul area. The government has tightened cooling measures on a selective basis, designating four more districts in Seoul as speculative zones subject to stricter loan and other requirements. South Korea: Inflation CPI 3 1 Core CPI PPI (RHS) 1 13 1 15 1 17 1 - - - South Korea: Housing prices & rents 1 - Housing prices Housing prices: Seoul Housing rents - 1 13 1 15 1 17 1 The Bank of Korea (BOK) kept the benchmark rate unchanged at 1.5% during the latest meeting on 31 August, citing the risks to the growth outlook from trade war uncertainties and job market weakness. The Y and 1Y KTB yields retreated by more than bps in August, partly due to risk aversion in the global markets, partly also due to the moderation in rate-hike expectations domestically. South Korea: Short-term interest rates % pa,. 7D repo rate 3M CD rate CPI 3. KTB yields % pa 3..5 1Y KTB 1Y IRS Y KTB 7D repo.. 1. 1.5. 1 13 1 15 1 17 1 1. 1 17 1 Page
South Korea chart book Pre-emptively dovish 5 September 1 Capital flows The current account stayed in a strong surplus worth USD9.7bn in 1H1 (3.% of GDP). This is still above the threshold (3% of GDP) set by the US to label its trade partners as currency manipulators. Foreign inflows into the KRW bond market remained buoyant in August, notwithstanding the Turkish/Argentine crisis and the EM sell-off. South Korea: Current account balance 1 1 1 - - Current account Goods Services - 1 1 1 1 Foreign investment in KRW bonds KRW bn 1 Exclude maturity redemptions Include redemptions - - 1 13 1 15 1 17 1 Foreign reserves declined by USD1.3bn to USD1.1bn in August, which could be largely attributed to the FX valuation effect. There is insufficient evidence that the BOK has intervened in the FX market to support the won. The KRW hovered around 111-113 versus the USD in August, clearly outperforming other major Asian currencies during the EM sell-off. South Korea: Foreign reserves 1 - Change in foreign reserves (valuation adjusted, RHS) Foreign reserves - 1 1 1 1 3 3 3 3 USD/KRW vs. Asian dollar index 15 USD/KRW Depreciation ADXY (RHS) 1 115 11 15 Appreciation 1 17 1 1 1 1 1 1 11 11 11 Page 5
South Korea chart book Pre-emptively dovish 5 September 1 Domestic and foreign debt Total domestic debt (as a percentage of GDP) has started to stabilise since 1. The increase in household debt (1Q1: 9% of GDP) was offset by the deleveraging in the corporate sector. Public debt expansion as a result of fiscal stimulus will be an area that warrants attention. South Korea: Public and private debt % of GDP 5 Government External debt has rebounded, rising to USD.5bn in Q1 from the recent bottom of USD3.1bn in Q1. Dollar borrowings from the government and the banking sector increased the most. Nonetheless, the outstanding external debt can be comfortably covered by external assets (Q1: USD95.5bn). South Korea: External debt by borrowers Government Banks 5 Non-bank financial institutions Total 15 1 5 Corporate Household 1 9 11 13 15 17 1Q9 1Q1 1Q15 1Q1 Page
South Korea chart book Pre-emptively dovish 5 September 1 Forecasts on major indicators GDP CPI inflation 1 17 1f 19f 1 17 1f 19f Annual change (%, YoY).9 3.1.9.9 1. 1.9 1.5 1. Exchange rate and interest rates forecasts 1Q1 Q1 3Q1f Q1f 1Q19f Q19f 3Q19f Q19f USD/KRW eop 1 1115 115 1 11 11 11 11 Benchmark repo rate (%, eop) 1.5 1.5 1.5 1.5 1.5 1.75 1.75. 3M CD rate (%, eop) 1.5 1.5 1.5 1.5 1.5 1.9 1.9.15 Government bond yields 3Y (%, eop)..1..5.1.15..5 1Y (%, eop)..5.35.5.55.5.75. 1Y-3Y (bps) 1 3 35 5 5 55 55 Page 7
South Korea chart book Pre-emptively dovish 5 September 1 Group Research Economics & Strategy Taimur Baig, Ph.D. Chief Economist - G3 & Asia +5 7-95 taimurbaig@dbs.com Nathan Chow Strategist - China & Hong Kong +5 3-593 nathanchow@dbs.com Joanne Goh Regional equity strategist +5 7-533 joannegohsc@dbs.com Neel Gopalakrishnan Credit Strategist +5 7-7 neelg@dbs.com Eugene Leow Rates Strategist - G3 & Asia +5 7- eugeneleow@dbs.com Chris Leung Economist - China & Hong Kong +5 3-59 chrisleung@dbs.com Radhika Rao Economist - Eurozone & India +5 7-5 radhikarao@dbs.com Irvin Seah Economist - Singapore, Malaysia, & Vietnam +5 7-77 irvinseah@dbs.com Duncan Tan FX & Rates Strategist - ASEAN +5 7-1 duncantan@dbs.com Samuel Tse Economist - China & Hong Kong +5 3-59 samueltse@dbs.com Philip Wee FX Strategist - G3 & Asia +5 7-33 philipwee@dbs.com Ma Tieying Economist - Japan, South Korea, & Taiwan +5 7- matieying@dbs.com Sources: Data for all charts and tables are from CEIC, Bloomberg and DBS Group Research (forecasts and transformations). Disclaimer: The information herein is published by DBS Bank Ltd (the Company ). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified. DBS Bank Ltd., 1 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 19. Tel: 5-7-. Company Registration No. 193E. Page