Macroeconomic Forecast South Korea

May 2006 | Macroeconomic Forecasts

South Korea's Q106 GDP expanded by a seasonally-adjusted 1.3% m-o-m (6.2% y-o-y) in Q106. Although the figure exceeded consensus expectations, we are concerned that it may represent the high water mark for South Korean growth in 2006. Indeed, BMI has forecast 5.2% expansion in 2006, and 5.0% expansion in 2007. While we view the macro picture as broadly positive, oft-mentioned downside risks are rising in salience. At present, South Korean is facing the spectre of further won strength and continued monetary tightening in the United States. Such a scenario would lessen export growth. Moreover, credit conditions will likely tighten. BMI expects to see two 25bps rate hikes in H206, which would boost the overnight call rate to 4.50%.

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