The increased focus on the domestic market and economic growth in China and Japan, which our Country Risk team expects to remain on a downward trend, will continue to weigh on Korean export growth over the medium term. Further, we expect the won to remain strong in relation to the renminbi and the yen as we believe the central bank will continue to adapt its monetary policy to domestic developments more than external issues. ...Meanwhile, we expect significant medium-term benefits to arise to Korean exports from the recent free trade agreement (FTA) signed with Vietnam. Under the agreement, which was approved by the National Assembly of South Korea on November -- ----, Vietnam will remove import duties on --.- goods from South Korea within -- years, while South Korea will do the same on --.- of Vietnamese imports. Further, Vietnam will open its construction, urban planning, landscaping and machinery lease sectors to Korean investment, which will enable Korean infrastructure and construction companies to better participate in urbanisation projects. ...On the back of these developments we expect better trade dynamics throughout our forecast period, with total trade growing at a yearly average of - in real terms over ---------. Import growth will outpace growth in exports as developments in the currency market will benefit the former and weigh on the latter.
...We forecast positive growth in South Korean trade volumes in ----, anticipating a -.- real expansion in total trade, driven by a -.- increase in imports and -.- in exports. Real growth will strengthen to -.- in ----, with imports being the primary driver. ...Our expectation that trade will enjoy real growth is a positive for the country s freight transport sector, but there are significant risks from a poor macroeconomic outlook. Over the short term, we hold a bearish view with regards to the Korean economy as the moderate recovery in the domestic economy will be insufficient to offset the unexpectedly strong slowdown in the external sector. We are downgrading South Korea s ---- real GDP forecast slightly to -.- (from -.- previously) despite the economy s surprisingly strong -.- expansion in H--- (with Q--- growth coming in at -.- y- o-y). ...Nevertheless, our downgrade reflects mounting headwinds from the ongoing restructuring of the shipbuilding industry and the spillover effects it will have on the broader economy.
...Despite a host of economic headwinds, we hold a positive view on the South Korean road freight sector over the coming years. In the near term, a weak outlook for both exports and the South Korean consumer will limit the volume expansion rate, but low diesel prices and positive economic growth will mean that volumes will continue to grow. ...
