Emerging Asia

Korea

Korea Trade (1st – 20th Oct.)

Korean export values continue to climb in October driven by both rising prices and growth in underlying volumes. The strength of the external sector adds weight to our view that the economy will expand faster, and the central bank will tighten more quickly, than most analysts expect.

21 October 2021

Interest rates and inflation to remain low

Growth in China will weaken further over the coming year as a downturn deepens in industry and construction. The outlook for the rest of the region is improving. We expect many economies to rebound strongly as governments ease restrictions on the back of faster vaccine rollouts and success reining in COVID outbreaks. Central banks – unlike in much of the emerging world – are in little rush to tighten. Inflation hasn’t emerged as a concern and, with large output gaps set to keep a lid on price pressures, we expect policy rates in most countries to remain on hold over the coming year. In contrast, the consensus and financial markets are expecting central banks to begin tightening in 2022.

20 October 2021

Car woes to weigh on recoveries in Mexico & CEE

The supply constraints that have hit global vehicle output have probably reduced the level of GDP by a modest 0.1-0.2% in most EM auto producers, but some countries like Czechia, Hungary and Mexico have suffered much bigger blows. And the drag from vehicle production is likely to persist for some time yet.

15 October 2021
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Asia reopens, more hikes in Korea & Sri Lanka

Countries across Emerging Asia are making renewed efforts to reopen their borders to boost flagging tourism sectors. However, the recovery is likely to be very gradual, not least because China (which was the source of around one-third of all tourists to the region before the pandemic) is in no rush to reopen its border. The poor prospects for tourism will weigh heavily on the Thai baht over the coming year and lead to further balance of payments strains in Sri Lanka. Meanwhile, the central banks of Korea and Sri Lanka left interest rates unchanged at their scheduled meetings this week, but we think it won’t be long before both raise interest rates again

Bank of Korea on hold, but extended hiking cycle ahead

After leaving rates on hold today, the Bank of Korea gave strong signals of its intent to hike again in November. And given the Bank’s hawkish comments, we are adding another rate hike into our forecast for next year, bringing the total to a further 75bps of tightening in 2022.

Time to worry about inflation?

The recent jump in energy prices will put upward pressure on inflation across the region, but the impact should prove short lived and is unlikely to worry policymakers.

Bank of Korea still on for another hike in 2021

Korean consumer prices saw another strong m/m rise last month, and while we don’t think this is a major cause for concern it still adds weight to our view that the central bank will hike rates again later this year.

Korea Trade (Sep.)

Korean export values remained close to an all-time high in September and look to have provided a decent boost to growth over the quarter as a whole.

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