Korea: growth to slow, inflation to fall, rates to be cut

Korea’s economy rebounded strongly last quarter but there are already signs it is losing momentum, and we expect growth to struggle over the coming year. Export growth is likely to ease a little, but the main drag will come from weaker domestic demand, with falling real incomes, tight fiscal policy and a renewed downturn in the property market all set to weigh on the economy. If GDP growth slows as we anticipate, then interest rate cuts are likely to come on to the agenda soon. We think the Bank of Korea will start loosening monetary policy in October, sooner than when financial markets are expecting.