Subscribers Only
Korea – cycle update
The October-November sentiment surveys from the BOK.
Subscribers Only
Korea – on hold, but uncertain
In a unanimous decision, the BOK made no change to policy today. It said inflationary pressure was a bit stronger than it had previously forecast, but didn't change its growth outlook. The main shift in the bank's language was to stress the uncertainty around the outlook.
Subscribers Only
Korea - Not much room for doves
In the run-up to the BOK meeting later this week, a summary of the macrocycle in Korea and our thinking on the central bank.
Subscribers Only
Korea – inflation up again
Inflation in Korea rose again in September, picking up to 3.7% YoY. Core inflation was flat YoY, but picked up sequentially. With US rates still so high, our model points to a high risk of further BOK tightening.
Subscribers Only
Korea – still no export rebound
Equity markets have been pricing in a decent improvement in exports, but the September business survey didn't show any recovery in export sentiment. However, both the business and sentiment surveys suggest stickiness in inflation.
Subscribers Only
Korea – unemployment down again
Korea's labour market isn't quite as tight as suggested by the renewed fall in the unemployment rate in August. Equally, though, there isn't real slack appearing. With headline inflation rebounding in August, this will matter for the BOK if exports now start to rebound.
Subscribers Only
Korea – CPI and tightening risk rises
CPI and tightening probability in our model of the BOK's reaction function both rose in August. The one factor weighing on rates is the weakness of activity, particularly exports. If before its October meeting the BOK gains confidence the export slump is reversing, another hike is very possible.
Subscribers Only
Korea – prices firmer in August
The BOK was hawkish in August, and weekly price data suggest that the fall in CPI since July 2022 is bottoming out. If that is accompanied by a rebound in exports, it will make the BOK quite interesting the next 6M.
Subscribers Only
Korea – BOK still hawkish
There was no change from the BOK today, with the bank remaining quite hawkish. It seems the bank might be able to break out of its wait-and-see stance of the last few months at its next meeting in October, with the governor saying that by then he expects to have a better grasp on the outlook.
Subscribers Only
Korea – a little softer
Korean activity data are a bit sluggish, with signs that the domestic economy is losing some momentum, while exports aren't picking up. At the same time, inflation is coming down. This probably allows the BOK to become a bit less hawkish tomorrow, but real direction will depend on exports in Q4.
Subscribers Only
Korea – employment softer
For the first time in a few months, Korea's labour did soften a bit in June. The decline was led by private services, rasiing the risk that domestic momentum is stating to fade. That will become an important issue for the BOK into Q4 if by then exports haven't started to revive.
Subscribers Only
Korea – CPI not very soft
Headline YoY CPI continues to fall fast. Core is also easing, and on our model, the BOK is now out of tightening territory. However, sequential CPI ticked up in July, so we doubt the BOK becomes much more doveish through Q3. Beyond that, much will depend on whether exports turn up in Q4.
Subscribers Only
Korea – exports still falling
Exports weakened again in July, but imports fell more, so the trade surplus is now back in surplus for the first time since early 2022. Leading indicators are mixed, but if exports are going to bounce as equities suggest, we'd think exporter business sentiment will first start to rise.
Subscribers Only
Korea – Going sideways
Consumer and business sentiment are helpful indicators for mapping out the direction of Korea's cycle. The July versions this week show inflation peaking, but the domestic cycle bottoming. Business sentiment is still soft, but there's a hint of bigger improvement in Q4.
Subscribers Only
The East Asia Economist – Korea's "she-covery"
Labour demand is at record highs in Korea, but so is supply, boosted by a rise in female participation. In the short-term, that takes a bit of pressure off inflation. In the longer-term, it is another reason to think Korea can avoid the sort of malaise associated with Japan-style demographics.
Subscribers Only
Korea – BOK still hawkish
The BOK governor today did acknowledge the fall in core inflation in June, but otherwise the tone of the today's policy meeting remained rather hawkish.
Subscribers Only
Korea – finally, core inflation drops
Headline inflation dropped in June, but there was also a first significant easing in core. That justifies the BOK being on hold, with the direction from here being dependent on external demand: does that now rebound on the back of AI demand for tech, or is DM about to take a dive into recession?
Subscribers Only
Korea – sideways
Business sentiment is going sideways. The weakest sector remains exporters, which suggests companies aren't seeing the recovery in external demand indicated by the equity market. The survey also gives the first hint that the goods price disinflation that began in early 2022 is coming to an end.
Subscribers Only
Korea – picking up?
In June the consumer confidence rose again; property price expectations picked up; and CPI expectations didn't fall. This probably isn't enough on its own to turn the BOK more hawkish. But if it is combined with better business sentiment and exports, then the bank will likely be back to hiking.
Subscribers Only
Korea – no labour market cracks
Employment rose and the unemployment rate fell to a new multiyear low of 2.5% in May. These aren't the sort of developments that will make the BOK fell more confident that the stickiness of core inflation is about to give way.
Subscribers Only
Korea – core inflation holding
Headline CPI inflation is now coming down quickly, and could drop below the BOK's 2% target by the end of Q3. But core inflation continues to hold up, and the BOK is unlikely to shift policy before that changes.
Subscribers Only
Korea – BOK on hold
It was no surprise to anyone that the BOK didn't change rates today. As things currently stand, we doubt it moves soon. It downgraded GDP forecasts today, but also revised up the outlook for core CPI. The combination obviously makes it difficult to hike, and hard to cut.
Subscribers Only
Korea – BOK stuck
The BOK will likely remain on hold tomorrow. Falling headline inflation will create some space for the bank from here, but we think the labour market and core inflation need to soften to get rate cuts on the agenda. If the recent stabilisation of activity persists, that becomes less likely.
Subscribers Only
Korea – consumer sentiment rises
CPI expectations are falling, but consumer confidence and house price sentiment are rebounding. The easing of CPI expectations is another indication that further rate hikes are less likely. But it is unlikely the BOK will cut if the recent improvement in sentiment shows that the cycle is rebounding.
Subscribers Only
Korea – labour market stable
The labour market went sideways in April, keeping the unemployment rate at 2.6%, the lowest since the 1990s. Non-manufacturing business sentiment suggests employment will remain around current levels for the next 6M. That doesn't seem likely, on its own, to bring down core inflation.