South Korea | After a weak Q1, the won should post modest gains
While we expect broad US dollar strength in the rest of 2021, we still see
modest gains in the Korean won (KRW) from current levels. This will come from a real yield advantage over the US, a positive export outlook, and valuations that don’t look stretched.
What you will learn from this report:
- We expect South Korea to retain a positive real yield spread over the US, supported by a higher policy rate than that in the US and a relatively contained inflation outlook.
- The three- and 10-year real yield spreads have remained well
over 1%, despite the rapid rise in US Treasuries over Q1.
- We expect South Korea’s exports to continue growing strongly, lifted by the global trade recovery and semiconductor demand.
BoK’s monetary policy to tighten even as hiking cycle ends
Even without rate hikes, central banks' monetary policies can effectively tighten if the nominal neutral rate falls below the policy rate. We expect this will be the case for the Bank of Korea this year, as the gap between the policy rate and the nominal neutral rate widens.Find Out More
China: Emerging green shoots in Spring, but not out of the woods
We now incorporate a faster recovery from the post-Covid exit wave and raise our 2023 full-year GDP growth forecast to 4.5% (from 4.2% previously).Find Out More