HKIR2015-16 Korea Economy and Industry Overview …2015/01/08 · Korea Economy and Industry...

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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


1．Overview of the Korea Economy


(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%


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


▲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)


▲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



2. Korean Economic Indicator and Outlook


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)


▲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


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



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


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)


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


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)


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


(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


3． Trends of Major Industry in Korea


▲10

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10

20

30

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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

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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


(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


(Source) KAMA

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▲20

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80

100

0

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20

30

40

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60

70

07 08 09 10 11 12 13 14 1Q141Q15

US Middle EastEU Other EuropeCentral & S America AsiaOthers YoY (Total)


▲10

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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


▲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


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


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


▲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


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


▲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.


Ship Completion by Vessel


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


(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


4. Conclusion


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


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HKIR2015-16 Korea Economy and Industry Overview …2015/01/08 · Korea Economy and Industry...

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