Korea – still weakening
Business sentiment continues to fall, taking the BOK into what would usually be loosening territory. However, there is now some risk of second derivative improvement, with exporter sentiment and the diffusion both ticking up through February.
Korea – inflation expectations up
Inflation expectations ticked up in January. That probably reflects a stabilisation of headline CPI on the back of higher utility prices. It would be more significant if improving market sentiment towards the global cycle starts to show up in a real strengthening of Korean industrial data.
Korea – less worse
Exports remain weak, and should deteriorate further in Q1. However, shipments in January weren't as bad as they might have been, and with our regional leading indicator showing early signs of bottoming out, there is now a risk of second-derivative improvement in Korean exports through Q2.
Korea – careful what you wish for
Korea's property market is reversing sharply. That turn will help control CPI inflation, but also increases the downside risks to growth. That in turn makes BOK rate cuts more likely.
Korea – last hike
The BOK hiked again today, but the meeting gave strong hints that this is the last in the current cycle. The probability of a cut will likely start to grow in Q1, though for the BOK to actually do that, the bank will need more confidence that inflation is going to decline.
Korea – unemployment up
Unemployment rose and employment fell in December. This deterioration in the labour market is part and parcel of the BOK's attempts to control inflation, and weaker data for one month won't start the bank loosening. But the December data do make further hikes less likely.
The East Asia Economist
Our model suggests the BOK doesn't hike this week, and the inputs point to the bank being pulled into loosening territory during the year. The risks are that domestic factors, rather than exports and the industrial cycle, prove to be bigger drivers of inflation than they have been in the past.
Korea – inflation now turning
Activity has been weakening for a while, and there are now signs that inflation – for services as well as goods – is starting to turn down too. Rate cuts should be a possibility through Q2. A pre-condition is a more obvious weakening of the labour market.
Korea – a clear turn
Exports and the property market are turning down sharply. Employment growth has stalled, but the number of jobs hasn't yet fallen much, being held up by the services sector. That should be the next shoe to drop, and if it does, will open up a possible path for BOK rate cuts.
Korea – core CPI still high
Core inflation remains elevated, but the BOK is signalling it is near done with hiking. That's because of the deterioration in activity. That slowing of growth is sharp enough to make cutting a possibility, though the BOK likely needs to first see a fall in employment.
Korea – exports drop again
Korean exports fell again in November, and leading indicators suggest there is still more downside to come. The deterioration will test the BOK's ability to continue to hike rates.
Korea - BOK still hawkish
The BOK wasn't quite as hawkish as it has been, but is still some way from becoming dovish.
Korea – cutting on the agenda
The business sentiment survey is suggesting a deterioration in activity, and a fall in inflation. The survey hasn't yet fallen into cutting territory for the BOK, but likely will in Q123. That will become a more important message for the central bank if the labour market also starts to slacken.
Korea – the case for a pivot
With inflation expectations remaining high in today's November consumer confidence report, the BOK will likely hike this week. But from today's survey, and the cycle more generally, a case is emerging for a BOK pivot.
Korea – DM exports holding up
Korean exports are falling. Our model suggests there is still worse to come. From a market perspective, the next shoe to fall looks likely to be DM demand, which has remained surprisingly resilient in recent months.
Korea - labour market turning
It isn't enough yet, but there are signs that the labour market is starting to cool. The unemployment rate remains low, but employment was more or less unchanged in October for the fifth consecutive month. The risks for the BOK are shifting.
Korea – stubborn core CPI
The tick-up in headline CPI shouldn't persist. Core CPI inflation will likely prove more stubborn, but rather than prices spiralling up, the bigger risk right now is a sharp slowdown in economic activity in 1H23. This should provide justification for a BOK pivot, as long as the Fed does the same.
Korea – exports still falling
Korean exports are now falling in YoY terms, and there is more downside ahead. This is another sign that activity will soon be in cutting territory for the BOK. The fall in exports is meanwhile keeping the trade balance in deficit, meaning flows remain a negative factor for the KRW.
Korea - close to cutting territory
It didn't quite there yet in November, but in the next couple of months business sentiment will most likely be back at levels where, far rather than hiking 50bp, the BOK has historically been cutting.
Korea - inflation expectations tick up
Inflation expectations rose in October. That will keep the BOK hawkish, even though falling property price expectations add to downside risks for growth into 2023.
Korea - exports down again
Exports fell again in October, and excluding ships, are now down almost 20% from the peak. So far, the weakness is concentrated in shipments to Asia. The real risk is sales to DM will be the next shoe to fall.
Korea – still too inflationary for the BOK
Korea is starting to look a bit less inflationary, with import price inflation easing, and the labour market no longer tightening. But the BOK remains hawkish, worrying that the weakness in the KRW will drive inflation higher.
Korea – headline down, core up
Headline inflation is easing, which should start to impact expectations of how much more the BOK will hike from here. But core inflation on a MoM basis remains elevated, supported by rising services prices. That suggests cuts from the central bank aren't a near-term prospect.