Trade tensions are affecting Asian trade hubs but Korea avoided a recession with +1.1% q/q growth in 19Q2, after -0.4% in 19Q1. Policy is supportive: Last week, the Central Bank eased its policy rate by -25bps to 1.5% for the first time since 2016 (inflation was +0.6% y/y on average in 19H1). The government implemented a fiscal stimulus from April, aiming at tackling air pollution and supporting exports, using a part of last year’s fiscal surplus (+2.8% of GDP in 2018 and +1.6% of GDP in 2019). In 19Q2, the growth recovery was mainly led by local services sectors (incl. health and social spending), driven by government consumption growth (+7.3% y/y in 19Q2). Exports decreased by -13.5% (y/y) in June in nominal terms (-8% on average in H1), mainly led by technology (semiconductors mainly) and petrochemicals. The evidence shows that prices went down more than volumes (+0.3% overall in H1) and exports from other sectors still grew. GDP growth should avoid a hard landing in 2019 (+2.2%) on the back of policy support.
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Weekly Export Risk Outlook 25 July 2019