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A member of MUFG, a global financial group
Korea Economy and Industry Overview
The Bank of Tokyo-Mitsubishi UFJ. Ltd.
Corporate Research Division (Hong Kong)Jun 2015
Korea Economy and Industry Overview | Jun 20151
Table of contents
1.Overview of the Korea Economy
2.Korean Economic Indicator and Outlook
3.Trends of Major Industry in Korea
4.Conclusion
Korea Economy and Industry Overview | Jun 20152
1.Overview of the Korea Economy
Korea Economy and Industry Overview | Jun 2015
(at chained 2010 year prices, original series)
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
2.1 2.7 3.2 3.5 3.9 3.4 3.3 2.7 2.4Real GDP
Growth (YoY, %)
(Note) 1. Preliminary data was used from 1Q14~4Q14 and advanced estimate data was used for 1Q152. Due to the change of System of National Accounts, restated GDP figures were used
(Source) BOK
3
GDP Growth Trend ~ Annual GDP growth maintained moderate growth, while quarterly growth continued to slow down
Korea economy continued to grow and maintain moderate rising trend since 2012.
Real GDP growth rose further by 3.3% YoY in 2014 from 3.0% YoYin 2013.
GDP expansion in 2014 was supported by continuous growth in manufacturing and steady growth in export. In addition, plant and equipment investment turned positive.
Annual GDP Trend ~ Continued to rise at a moderate pace
Quarterly GDP Trend ~ The growth pace further decelerated in 1Q14 despite still growing
Quarterly GDP growth year-on-year continued to slow down since 1Q14 and decelerated to 2.4% in 1Q15.
The major contributors, manufacturing further slowed down and export was tepid. Thus, it largely affected to deceleration of economic growth.
1. Overview of the Korea Economy
603 651 721 767
876 920 966 1,043 1,104 1,152 1,265 1,333 1,377 1,429 1,485
0
2
4
6
8
10
0
300
600
900
1,200
1,500
1,800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(KRW trillion) (YoY, %)
Real GDP growth rate (RHS)
Nominal GDP
(Note) 1. Preliminary data was used for 20142. Due to the change of System of National Accounts, GDP figures were restated from 2000
(Source) Bank of Korea ("BOK")
3.3%
Korea Economy and Industry Overview | Jun 20154
Regarding production activity, manufacturing accounted for 28.7% of total real GDP followed by retail and food hospitality (10.6%) in 1Q15. Besides, finance & insurance and construction accounted for 6.4% and 3.1% respectively.
In 1Q15, deceleration of quarterly GDP growth in YoY was due to slowdown in manufacturing, while retail & food hospitality and finance & insurance registered relatively stable growths. Construction turned positive after the negative growth in the previous quarter supported by stimulus policy.
Contribution to Real GDP Growth by Major Production Sectors
Contribution to Real GDP Growth by Production Activity ~ Recent GDP growth decelerated due to slowdown in manufacturing
1. Overview of the Korea Economy
▲4
▲2
0
2
4
6
8
10
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Manufacturing Construction Retail and Food Hospitality
Finance and Insurance Others GDP
(Note) 1. Preliminary data was used from 1Q14~4Q14 and advanced estimate data was used for 1Q152. Others include real estates & leasing, public admin & defense, information and telecommunication,
educational service, business service and etc 3. Due to the change of System of National Accounts, restated GDP figures were used
(Source) BOK
(YoY, %) (at chained 2010 year prices, original series)
Korea Economy and Industry Overview | Jun 2015
▲15
▲10
▲5
0
5
10
15
20
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Private consumption Government consumption Construction investment
Plant and equipment investment Export of goods and service Import of goods and service
Adjusted others GDP
(YoY, %) (at chained 2010 year prices, original series)
(Note) 1. Preliminary data was used from 1Q14~4Q14 and advanced estimate data was used for 1Q152. Others include intangible fixed asset investment, other gross capital formation and statistical discrepancy3. Due to the change of System of National Accounts, restated GDP figures were used
(Source) BOK
5
Contribution to Real GDP Growth by Expenditure Activity ~ Recent GDP growth slowed down due to tepid export
Regarding expenditure, private consumption accounted for 51.4% of total real GDP in 1Q15 followed by government consumption (14.6%), construction investment (11.5%), and plant & equipment investment (9.7%). Besides, net export shared 3.5% of total real GDP as export accounted for 55.8%, while import accounted for 52.3%.
In 1Q15, slowdown in quarterly GDP in YoY was affected by lackluster export. Meantime, growth trends of private and government consumptions as well as plant & equipment investment were stable compared with previous quarter. Construction investment turned positive.
Contribution to Real GDP Growth by Expenditure Activity
1. Overview of the Korea Economy
Korea Economy and Industry Overview | Jun 20156
2. Korean Economic Indicator and Outlook
Korea Economy and Industry Overview | Jun 20157
Export Condition ~ Declined due to drop in unit price of major export products affected by low oil price amid slower-than-expected global economic growthKorea’s total export declined by ▲2.9% YoY to USD 133,568 million in 1Q15.
By product, semiconductor accounted for 11.6% of total export followed by shipyards (10.0%), general machinery (8.8%), automobile (8.6%), petrochemical (7.1%) and petroleum (6.1%).
By area, export to China accounted for 25.4% of total export followed by US (13.0%), ASEAN-5 (10.5%), EU(8.0%)and Japan(4.8%).
In 1Q15, decline in export was largely due to sharp drop in export unit price on major products such as petroleum and petrochemical affected by low oil price.
Export to US grew significantly, but export to other areas weakened due to slower-than-expected economic growths. Export to China declined owing to slowdown in China economy, and exports to EU and Japan fell affected by weak EUR and JPY.
Export Growth by Area
Total Export and Growth Rate Fx Rate (KRW/USD and JPY/USD)
2. Korean Economic Indicator and Outlook
▲60
▲40
▲20
0
20
40
60
0
10,000
20,000
30,000
40,000
50,000
60,000
05 06 07 08 09 10 11 12 13 14 15
Export YoY (RHS)
(USD million) (%)
(Source) CEIC
(YoY, %)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1Q14 1Q15
Total 12.0 14.4 14.1 13.6 ▲13.9 28.3 19.0 ▲1.3 2.1 2.3 1.6 ▲2.9
China 24.4 12.2 18.0 11.5 ▲5.1 34.8 14.8 0.1 8.6 ▲0.4 2.8 ▲1.5US ▲3.5 4.5 6.0 1.3 ▲18.8 32.3 12.8 4.1 6.0 13.3 2.6 13.4ASEAN-5 9.1 12.8 17.7 23.7 ▲17.8 39.1 32.8 10.1 7.5 1.4 6.5 ▲8.1EU 15.4 11.0 13.4 6.3 ▲20.2 14.8 4.1 ▲11.4 ▲1.0 5.7 16.2 ▲21.1Japan 10.7 10.4 ▲0.6 7.1 ▲22.9 29.4 40.8 ▲2.2 ▲10.7 ▲7.2 ▲10.1 ▲22.0
(Note) ASEAN-5: Indonesia, Malaysia, Philippines, Thailand, and Vietnam(Source) CEIC
40
60
80
100
120
140
160
400
600
800
1,000
1,200
1,400
1,600
05 06 07 08 09 10 11 12 13 14 15(Source) Bloomberg
(KRW/USD) (JPY/USD)
JPY/USD(RHS)
KRW/USD
Korea Economy and Industry Overview | Jun 2015
0
1
2
3
4
5
6
7
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(%)
Unemployment rate
CPI inflation(YoY) Core CPI inflation
(YoY)
(Note) Core CPI excludes oil and agricultural products(Source) Korean Statistical Information Service ("KOSIS")
8
Unemployment Rate and CPI ~ Unemployment rate slightly rose under the seasonal factor and CPI further lowered Overall unemployment as well as
youth unemployment rates slightly rose in 1Q15 due to seasonal factor (i.e. graduation season).
Overall unemployment rate is expected to stay relatively stable in view of still steady economic growth. Meantime, youth unemployment rate should be monitored as policy to increase retirement age from 55 to 60 would be effective from next year.
CPI inflation further decelerated during 1Q15 mainly owing to continuous steep drop in oil price since 4Q14. Core CPI inflation slightly rose.
CPI inflation is likely to remain low. Although private spending may improve moderately, CPI inflation would be restrained as oil price is widely projected to stay at low zone.
Unemployment Rate and CPI Inflation
2. Korean Economic Indicator and Outlook
Korea Economy and Industry Overview | Jun 20159
KOSPI Index ~ Market gained mild upward momentum supported by quantitative easing by ECB and delay on interest rate increase by US Fed The total market capitalization
posted KRW 1,292 trillion as of end Mar 2015 from KRW 431 trillion in early-2005. KOSPI index saw mild upward trend during 1Q15 after the overall soft market in the pervious quarter.
KOSPI Index rose supported by positive market sentiments. The sentiments were generated from quantitative easing by ECB, delay on interest rate increase by US Fed as well as interest rate cut by China.
KOSPI Index Trend
2. Korean Economic Indicator and Outlook
0
500
1,000
1,500
2,000
2,500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(Source) Korea Stock Exchange
(Jan 1980=100)
Korea Economy and Industry Overview | Jun 2015
20
40
60
80
100
120
140
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
CSI
(Note) 1. BSI ~ Business Sentiment Index; CSI ~ Consumer Sentiment Index2. BSI, CSI: above 100 ~ number of positive responses exceeds number of negative responses; below 100 ~ number
of positive responses is less than number of negative responses(Source) BOK
BSI (Manufacturing)
BSI (Industry total)
10
Sentiment and Economic Composite Indices ~ Amid still cautious sentiments, leading indices remained mild upward trend in expectation of economic growthBusiness Sentiment Index (“BSI”)
slightly rose under the still low level during 1Q15. Consumer Sentiment Index (“CSI”) stayed above 100, but it remained soft in overall.
Relatively tepid BSI and CSI were affected by continuous slow economic growths. However, recent indices show some improvement.
In relation to leading indicators, LCI and CLI remained modest rising trend and implied economic expansion in the near future.
Sentiment Index
Economic Composite Index
(Note) 1. LCI, CCI indices: Average 2010=1002. CLI (RHS) Index: above 100 and increasing ~ expansion; above 100 and decreasing ~ downturn;
below 100 and decreasing ~ slowdown; below 100 and increasing ~ recovery (Source) KOSIS, OECD
2. Korean Economic Indicator and Outlook
96
98
100
102
104
60
80
100
120
140
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
CCI (Coincident Composite Index)
LCI (Leading Composite Index) CLI (Composite
Leading Index)
Korea Economy and Industry Overview | Jun 201511
Outlook of Korea Economy ~ Korea GDP may maintain positive growth despite milder-than-expected paces supported by improvement in domestic demand
Korea economy is forecast to grow modestly in 2015-2016.
Projection on Korea economic growth has been further adjusted down (i.e. BOK forecast as of Jan 15 was 3.4% and 3.7% in 2015-2016). It factored in recent soft export and rising uncertainties in global economy. Therefore, in 2015, economic growth might be possible to slightly slow down. In 2016, it is likely to rise moderately.
Domestic demand may improve. Private spending would be supported by low oil price and further interest cuts (i.e. 2.0%→1.75% on Mar 2015 →1.50% on Jun 2015) amid still positive economic expansion. However, any possible negative impact from recently outbreak of MERS should be monitored. Plant & equipment investment might be stable, and construction investment may increase due to recovering construction.
Export condition becomes more challenging and it may continue to be affected by uncertain restraining factors (i.e. unfavorable forex movements, slow China economy, low oil price, negative impact on interest rate hike by US Fed and etc.) in the near term. Meantime, officially signed FTA agreement between Korea and China (as of 1 Jun 15) would be a positive factor for export once it is implemented (i.e. The deal is targeting to be effective within this year).
GDP Growth Forecast
2. Korean Economic Indicator and Outlook
(YoY, %)
2015 2016 2015 2016 2015 2016
World 3.4 3.4 3.7 3.5 3.8 3.1 3.8
Korea 3.3 3.1 3.4 3.3 3.5 3.0 3.6
China 7.4 6.9 6.8 6.8 6.3 6.8 6.7
US 2.4 2.9 2.8 3.1 3.1 2.0 2.8
Euro area 0.9 1.4 1.8 1.5 1.7 1.4 2.1
Japan ▲0.1 1.0 1.3 1.0 1.2 0.7 1.4
BOK (as of Apr-15) IMF (as of Apr-15) OECD (as of Jun-15)2014
(Note) Euro area: BOK and IMF ~ Eurozone 17 countries; OECD ~ Euro area 15 countries(Source) BOK, IMF, OECD
Korea Economy and Industry Overview | Jun 201512
3. Trends of Major Industry in Korea
Korea Economy and Industry Overview | Jun 2015
▲10
0
10
20
30
40
50
0
50
100
150
200
250
2010 2011 2012 2013 2014 1Q14 1Q15
China (incl. Hong Kong) ASEANEurope USCentral & South America JapanYoY
(USD billion) (YoY, %)
13
Electronics ~ Industry may maintain positive growth at a small rate supported by continuous stable demand from semiconductor
Electronics industry slightly softened. Production and export was largely flat YoY in 1Q15
In 1Q15, export value to Europe declined sharply due to weak EUR, while export to the largest market China and ASEAN rose at healthy rates backed by stable demand.
By product, export of flat panel display remained soft, and export of handset (incl. handset parts) was under pressure by decline in export of finished products amid tight competition and increase in overseas production capacity. However, semiconductor rose by 7.3% YoY and upheld overall export to sustain supported by high demand of mobile memory and positive demand of system memory.
Looking forward, electronics industry may maintain a positive growth at a small rate. Handset performance could be temporarily lifted due to introduction of new model, but the impact might be limited. Semiconductor is expected to continue to grow slowly supported by stable demand and as a whole, it would be a major contributor for the industry.
Electronics Industry Production Export by Major Area
Export Major Products DRAM and NAND Price Trend
(Note) 1. Production ~ The sum of ICT devices and software2. Export ~ Export value out of domestic production,
Domestic ~ Domestic sales out of domestic production 3. Annual average FX rate was used for export
(Source) KAIT, KEA, IITP
(Note) 1. Due to new classification of statistics, the data from 2012 wasrestated
2. ASEAN ~ Mainly Singapore, Thailand, Indonesia and Malaysia(Source) NIPA
3. Trends of Major Industry in Korea
0
2
4
6
8
0
1
2
3
4
11 12 13 14 15
DRAM (2GB) NAND (RHS)
(USD) (USD)
(Source) Bloomberg
0
20
40
60
80
05 06 07 08 09 10 11 12 13 14
SemiconductorFlat panel displayHandset (incl. handset parts)
(USD billion)
(Note) Due to the statistics reclassification, handset data from 2012 includes handset parts
(Source) IITP, NIPA, KEA, KAIT
1Q14 1Q15
▲10010203040
0100200300400500
05 06 07 08 09 10 11 12 13 14
Export DomesticYoY (Production) (RHS) YoY (Export) (RHS)
(KRW trillion) (YoY, %)
1Q14 1Q15
Korea Economy and Industry Overview | Jun 2015
(10,000 units)
(YoY, %) (YoY, %) (YoY, %) (YoY, %)
2005 370 6.6 114 4.5 259 8.7 74 78.72006 384 3.8 116 1.9 265 2.4 101 35.92007 409 6.4 122 4.7 285 7.5 116 15.12008 383 ▲6.4 115 ▲5.3 268 ▲5.7 146 25.42009 351 ▲8.2 139 20.7 215 ▲19.9 190 30.52010 427 21.6 147 5.1 277 29.0 260 37.02011 466 9.0 147 0.6 315 13.7 314 20.62012 456 ▲2.0 141 ▲4.3 317 0.6 364 15.82013 452 ▲0.9 138 ▲1.9 309 ▲2.6 411 13.02014 452 0.1 146 5.8 306 ▲0.8 441 7.41Q14 115 3.7 34 4.3 79 0.9 109 6.91Q15 111 ▲4.1 34 2.1 73 ▲6.8 111 1.7
Domestic Domestic Exportproduction sales sales production
Overseas
(Note ) Domestic sales ~ Units sold by Korean car makers(Source) KAMA
▲60▲40▲20020406080100120140
05
101520253035404550
07 08 09 10 11 12 13 14 15Commercial Vehicle (CV) Production: 10 (1Q15)Passenger Vehicle (PV) Production: 101 (1Q15)YoY Growth (PV Production): ▲4.6 (1Q15) (RHS)YoY Growth (CV Production): 2.2 (1Q15) (RHS)
(10,000 units) (YoY, %)
(Source) CEIC
14
Automobile ~ Production may stay soft due to cautious outlook on export despite possible positive growth in domestic sales
Automobile production in Korea declined by ▲4.1% YoY to 1.11 million units in 1Q15.
Domestic sales sustained to grow supported by low oil price, new models and demand for multipurpose vehicle such as SUV and mini van.
Export volume fell by ▲6.8% YoY. Despite favorable export growth to US, overall weak export was affected by economic downturn in Russia, Middle East and some emerging markets. In addition, unfavorable forex rate (i.e. Depreciation of JPY, EUR and RUB) affected adversely on price competitiveness of Korea automobiles.
Looking forward, domestic production is likely to stay soft due to cautious outlook on export despite continuous positive domestic sales. Export might be under pressure as current restraining factors are unlikely to be reversed in the short term. Further expansion plans on overseas production may limit the export, but it would support global sales by major players to recover together with still steady demand in China and US.
Domestic Production by Vehicle Type
Export by Area
Production and Sales
Global Sales by Hyundai-Kia
3. Trends of Major Industry in Korea
(Source) KAMA
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▲20
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20
40
60
80
100
0
10
20
30
40
50
60
70
07 08 09 10 11 12 13 14 1Q141Q15
US Middle EastEU Other EuropeCentral & S America AsiaOthers YoY (Total)
(USD billion) (YoY, %)
▲10
0
10
20
30
0
200
400
600
800
1000
05 06 07 08 09 10 11 12 13 14
Sales by Hyundai and Kia Motors YoY (RHS)
(Note) Sales units were based on the shipment(Source) Hyundai Motor, Kia Motors, News articles
(10,000 units) (YoY, %)
1Q14 1Q15
Korea Economy and Industry Overview | Jun 2015
▲30▲20▲1001020304050
01020304050607080
07 08 09 10 11 12 13 14 15Ethylene Production: 207 (1Q15)YoY Growth: ▲0.7 (1Q15) (RHS)
(10,000 tons) (YoY, %)
(Source) CEIC
15
Petrochemical ~ Marginal improvement is expected due to still positive demand in domestic and overseas, while product price may remain low
Ethylene production edged down by ▲0.7% YoY to 2.07 million tons in 1Q15. Production of major petrochem sectors grew by 2.3%YoY in the same period.
Domestic demand of major products remained soft under the slow economy.
Export in volume was pushed up by continuous impact of capacity expansion on intermediaries. Also, there was stable overseas demand in synthetic resins. However, export in value fell significantly due to product price drop affected by sharp decline in oil price since 4Q14.
Looking forward, amid ethylene production may soften due to more maintenance schedules in 2015, overall industry production is expected to grow modestly. Domestic demand may recover marginally supported by positive demand from construction and electronics. Export may rise, but at a slower pace. While slowdown in China economy would limit export growth, low oil price may continue to support price competitiveness of naphtha basis products by Korea against coal or ethane basis products. Meantime, product price is expected to stay low in overall.
Oversupplied PX, the largest export product by Korea, may see temporary relief on the oversupply condition to a certain extent due to explosion in PX plant in China.
Ethylene Production Production & Export of Major PetrochemSectors
Export of Petrochemical Products Raw Materials and Ethylene Price Trend
3. Trends of Major Industry in Korea
0
400
800
1,200
1,600
2,000
0
30
60
90
120
150
05 06 07 08 09 10 11 12 13 14 15Brent crude oil Naphtha (RHS)Ethylene fob Korea (RHS)
(Source) Bloomberg
(USD/bbl) (USD/MT)
▲30
▲20
▲10
0
10
20
30
40
0
10
20
30
40
50
60
05 06 07 08 09 10 11 12 13 14
Export of petrochemical products YoY (RHS)
(Source) MOTIE, MKE
(USD billion) (YoY, %)
1Q14 1Q15
0
1,000
2,000
3,000
4,000
5,000
01,0002,0003,0004,0005,0006,0007,000
05 06 07 08 09 10 11 12 13 14
Olefins BTXIntermediaries Synthetic resinsSynthetic fibers raw materials Synthetic rubbersExport (RHS)
(10,000 tons) (10,000 tons)
(Source) KPIA
1Q14 1Q15
Korea Economy and Industry Overview | Jun 2015
▲30
▲20
▲10
0
10
20
30
40
0
100
200
300
400
500
600
700
05 06 07 08 09 10 11 12 13 14 15Crude Steel Production: 1,666 (1Q15)
YoY Growth: ▲6.5 (1Q15) (RHS)
(10,000 tons) (YoY, %)
(Source) CEIC
16
Steel ~ Growth would be limited as domestic demand and export are likely to remain largely flat
Crude steel production declined by ▲6.5% YoY in 1Q15 affected by large scale of maintenance and some discontinued operation due to restructuring.
Domestic sales for major products declined due to soft demand from automobile and shipbuilding despite recovering construction.
Export in value fell due to overall product price drop, while export in volume maintained to grow supported by demand from ASEAN and EU.
Looking forward, steel industry may see very limited growth at best. The industry is likely to be under pressure by restrained growth on global steel consumption and persistent oversupply. For domestic demand, recovering construction might be largely offset by cautious domestic production in automobile and weak shipbuilding. Export may slow down and register flat growth amid soft global steel consumption and further tightened competition with Japanese products supported by weak JPY.
Crude Steel Production
Raw Material & Steel Price Index Trend
Production and Consumption of Steel Products
Export of Steel Products by Area
3. Trends of Major Industry in Korea
0
2,000
4,000
6,000
8,000
05 06 07 08 09 10 11 12 13 14(e)▲40
▲20
0
20
40
ProductionApparent consumptionYoY Growth (Production) (RHS)YoY Growth (Apparent consumption) (RHS)
(10,000 tons) (YoY, %)
(Note) Estimated data was used for 2014(Source) KOSA
0
50
100
150
200
250
300
0
200
400
600
800
1,000
1,200
2009 2010 2011 2012 2013 2014 2015
Iron ore (RHS)
Steel price(World)
(USD/MT) (USD/MT)
(Source) Bloomberg
0
2,000
4,000
6,000
8,000
0
10,000
20,000
30,000
40,000
05 06 07 08 09 10 11 12 13 14
Total export Japan (RHS)China (RHS) US (RHS)ASEAN-10 (RHS) EU-27 (RHS)
(USD million) (USD million)
(Source) KOSA
1Q14 1Q15
Korea Economy and Industry Overview | Jun 2015
▲80
▲40
0
40
80
120
160
200
240
280
0
20
40
60
80
100
120
140
160
180
05 06 07 08 09 10 11 12 13 14 15
Container Ship Completion: 82 (1Q15) Bulk Carrier Completion: 21 (1Q15)
LPG/LNG & General Cargo Carrier Completion: 145 (1Q15) Oil Tanker Completion: 14 (1Q15)
YoY (Container Ship): ▲10.5 (1Q15) (RHS) YoY (Bulk Carrier): 100.8 (1Q15) (RHS)
YoY (LPG/LNG & General Cargo Carrier): ▲0.5 (1Q15) (RHS) YoY (Oil tanker): 13.5 (1Q15) (RHS)
(Source) CEIC
(YoY, %)(10,000 tons)
17
Shipbuilding ~ Industry may continue to face headwind and need more time to see a meaningful recovery, despite temporary increase in deliveries
New ship completion edged up by 0.7% YoY to 2.61 million tons in 1Q15 due to overall orderbook growths in previous terms. In line with orderbook trend by ship type, LPG/LNG carrier and container slightly lowered, but still remained as major sectors by accounting for 87% of total completions. While tanker and bulker went up from the very low bases.
In 1Q15, new contracting by Korea continued to decline ▲34.1% along with decline in contracting by all other countries (i.e. ▲70.9% YoY). Thus, orderbook posted negative growth. Amid overall weak demand, contracting by Korean shipbuilders was supported by demand in competitive sectors such as high-value-added very large container and LNG carrier as well as tanker backed by low oil price.
Looking forward, new completion is likely to see a short term of recovery given the orderbook trend during late 2013 to 2014. However, industry may continue to remain subdued and need more time for a meaningful recovery under the still oversupply global market. Low oil price may attract some demand for tanker, but it would discourage offshore vessel sector. Container market condition might see no significant change compared with last year. LNG demand may slightly soften after the large order on the previous term.
3. Trends of Major Industry in Korea
Ship Completion by Vessel
Korea Economy and Industry Overview | Jun 2015
5060708090
100110120130140150
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
1Q15
2Q15:100
▲10
0
10
20
30
40
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1Q14 1Q15
Large Discount Store Not-in-store SupermarketDepartment Store Convenience Store
(Source) CEIC
(YoY, %)
▲5
0
510
15
20
2530
0
5,000
10,00015,000
20,000
25,000
30,00035,000
07 08 09 10 11 12 13 14 15Retail Sales: 87,358 (1Q15)YoY Growth: ▲0.2 (1Q15) (RHS)
(KRW billion) (YoY, %)
(Source) CEIC
18
Retail ~ Overall sales of major retail sectors may improve moderately in line with mild improvement in private consumption
Retail sales remained largely flat year-on-year and register KRW 87 trillion in 1Q15. Relatively soft growth was owing to sales decline in fuel store sector affected by low oil price amid sales from major retail sectors grew in overall.
For sales by major sectors, most sectors saw positive growths in 1Q15. Not-in-store continued to perform well. Convenience store sales were pushed up by cigarette tax hike. Large discount store maintained to grow slowly. While, supermarket sales remained soft and department store was under the pressure by slower-than-expected improvement in private spending and ongoing competition with e-commerce and outlet.
Looking forward, retail sales of major sectors are likely to rise at a moderate pace supported by mild improvement in private consumption. Also, the sudden contraction on retail sales after the ferry incident in Apr 14 may provide low base effect. For the near term forecast, RBSI shows that retailers project the market condition would improve compared with the previous quarters. However, there is a need to monitor the negative impact of MERS on retail industry.
Amid still cautious view on department store, other major sectors may record positive growths.
Retail Sales and Growth Trend Retail Business Survey Index (“RBSI”)
Growth Rate by Major Sector
3. Trends of Major Industry in Korea
(Note) RBSI refers to the retailer sentiment index for the upcomingperiod though the survey. Index above 100 means greater numbers of retailers expect improvement
(Source) Korea Chamber of Commerce & Industry
Korea Economy and Industry Overview | Jun 201519
4. Conclusion
Korea Economy and Industry Overview | Jun 201520
Outlook of Korea Economy and Major Industry Korea economy is expected to maintain steady growth despite milder-than-expected pace. GDP growth may slightly slow down
this year due to the combination of tepid export and moderate improvement in domestic demand.
Export might be under pressure by rising uncertainties and restraining factors such as unfavorable forex movements, slowdown
in China economic growth, low oil price and possible negative impact from the interest rate hike by US Fed. US economic
improvement may continue to uphold export to US market. Euro economy is projected to improve with support from QE by
ECB, but it is still cautious in terms of export by Korea as the adverse impact from depreciation of EUR might be stronger than
slow demand improvement in the short term. Overall, export would remain relatively weak.
Domestic demand is likely to improve. Although high level of household debt would be a downward factor, private consumption
may register mild improvement supported by low oil price and interest rate cuts. Plant & equipment investment might be stable,
and construction investment may increase due to recovering construction industry after a series of stimulus policies. Meantime,
low CPI, high youth unemployment rate and any possible negative impact from MERS should be monitored.
Regarding major industry, most industries are expected to see some limited growths amid tight export environments. Electronics
would maintain positive growth at a small rate supported by stable semiconductor sector. Automobile domestic production may
stay soft due to tepid export outlook, while domestic sales would grow. Petrochemical might see marginal improvement due to
still positive demand despite pressure by low product price. Steel industry growth may move largely in line with slower growth of
world steel consumption. Shipbuilding may continue to face headwind under the weak global market. Retail sales of major
sectors are expected to rise at a moderate pace supported by mild improvement in private consumption.
Under the rising uncertainties and challenging export conditions, it would be the critical year for those major exporting industries
to check the sustainable competitiveness.
4. Conclusion
Korea Economy and Industry Overview | Jun 201521
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Korea Economy and Industry Overview | Jun 201522
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[Contact] Jessica H.K. KIM (Jessica_HK_Kim@hk.mufg.jp)