South Korea Chartbook: More stimulus needed, more coming

Concerns over prolonged economic weakness / deflation will likely mount in the months ahead, justifying the call for more stimulus.
Ma Tieying10 Sep 2019
Photo credit: AFP Photo

• Exports and domestic private demand both weakened during the Jul-Aug period, pointing to GDP growth slowdown in 3Q.
• CPI inflation fell to zero in August, raising the chances of negative figures during Sep-Nov.
• Concerns over prolonged economic weakness / deflation will likely mount in the months ahead, justifying the call for more stimulus.
• The central government has strongly boosted spending this year and will continue doing so in 2020. The FY20 budget pencils in a sharp rise in fiscal deficit to 3.6% of GDP vs 1.9% this year.
• The Bank of Korea’s July rate cut has effectively lowered the KRW funding costs. One more 25bps rate cut is on the cards in the rest of 2019, and further easing is possible next year.
• A modest growth rebound is expected in 2020 but public debt dynamics are set to deteriorate.

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Ma Tieying

Economist - Japan, South Korea, & Taiwan

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