Country Economic Forecasts > South Korea

Exports fell at their fastest pace since the global crisis in August, while the manufacturing PMI stayed below 50 for a sixth consecutive month. The problems, in large part, reflect the ongoing weakness in Chinese import volumes and the resulting sluggishness in regional trade. The poor export data and uncertain economic outlook has raised the possibility of another interest rate cut. But as a result of worries about financial stability, we think the BOK will target any further stimulus towards export-oriented firms and those particularly affected by the MERS outbreak, and only cut the base rate again if the growth outlook continues to worsen. However, the downside risks to our GDP growth forecasts of 2.4% in 2015 and 3.1% are high. A much sharper slowdown in China (than our current baseline forecast) would reduce activity in Korea both through lower trade and lower confidence. There is also a concern that the upcoming US tightening could increase global market volatility and undermine growth in emerging markets further. In addition, inventories are high, which could constrain any recovery in Korean manufacturing, while tensions with the North could spike again.