By Steven Levine, Senior Market Analyst

The Asia-Pacific calendar will shift into high gear in the week ahead, with several economic updates due out of South Korea, as well as an interest rate decision from that country’s central bank.

Monday, February 25

• Consumer Confidence (CCSI) – Feb

The week gets underway Monday with a report on South Korea’s Composite Consumer Sentiment Index (CCSI) for February after the previous month’s gauge rose by 0.6 points month-over-month to 97.5.

The survey’s 2,251 respondents generally waxed optimistic about current and future economic conditions but were more sullen about household income and spending. Consumers were also slightly upbeat about current living standards, with a steady view towards the future.

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Tuesday, February 26

• Business Confidence (BSI) – Feb

Elsewhere, investors will receive an update on South Korea’s Business Survey Index (BSI) for February, after the reading revealed lower confidence in the country’s manufacturing sector in the prior month.

Business conditions in manufacturing fell four points month-over-month in January to 67, while the outlook for the following month also fell by six points to 65. On a seasonally adjusted basis, the figures were 68 and 67, respectively.

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Overall, the nation’s economy has kept its growth rate in check, as increases in consumption and exports have been sustained, despite continued adjustments in facilities and construction investment. 

Wednesday, February 27

• Industrial Production (Jan)
• Retail Sales (Jan)
• Bank of Korea’s Interest Rate Decision

By mid-week, South Korea will provide fresh industrial production and retail sales data for January, and the Bank of Korea is slated to announce a decision on its Base Rate.

The BoK’s Monetary Policy Board elected at its January meeting to leave the rate unchanged at 1.75% amid a sluggish employment picture (unemployment rate for January 2019 was 4.5%, up 0.8% year-on-year) and slower-than-expected growth. The amount of increase in household lending had also diminished, while housing prices continued to slow.

Meanwhile, lower petrol product prices and smaller increases in agricultural, livestock and fish produce have mainly driven consumer price inflation to decelerate to the lower-1% level. The central bank expects CPI will fluctuate at the 1% level for “some time” and then steadily increase to the mid-1% level in the second half of 2019, while core inflation will also gradually rise.

Against this backdrop, the Korean won-U.S. dollar exchange rate has been generally stable while moving within a narrow range, as global financial market volatility has diminished somewhat. The BoK generally has its eye on U.S.-China trade talks, protectionism, paths to monetary policy normalization at the U.S. Federal Reserve and other major countries’ central banks, as well as uncertainties over Brexit.

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Thursday, February 28

• Trade Balance (Feb)

According to Trading Economics and Bloomberg, preliminary readings of South Korea’s trade balance showed a sharp narrowing of surplus to US$1.34bn in January from US$3.45bn in the same year-ago month. The country’s surplus shrunk to the smallest level in roughly four years, as exports dropped by 5.8% year-on-year to US$46.35bn, while imports fell 1.7% to a little more than US$45bn.

Sunday, March 3

• Nikkei Manufacturing PMI (Feb)

The Nikkei South Korea Manufacturing Purchasing Managers’ Index (PMI) provided further evidence of weakness in the nation’s manufacturing sector in January, with a drop in the reading to 48.3 from 49.8 during December. The decrease marked the sharpest downturn since November 2016.

Nikkei and IHS Markit attributed the decline to a steeper plunge in new orders, while domestic economic weakness was amplified by reduced new business from abroad. Sales to clients in China, Japan and Germany reportedly fell during the latest survey period, and overall, new export orders fell for the sixth straight month.

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IHS Markit economist Joe Hayes noted that given South Korea’s “close trading ties with China and the US, falling export demand acts as a worrying indicator for global economic growth.”

He continued that cuts to production and employment “suggest that manufacturers are bracing for difficult near-term prospects.

“Indeed, another month of factory gate price discounting highlights the desperate measures companies are taking to stimulate sales.”

Hayes added that in the current climate, “President Moon’s economic reforms and ambitious stimulus policies will be acting to offset business cycle effects as opposed to complementing them.”

As of November 2018, the U.S. Census Bureau ranked South Korea sixth among the U.S.’s top trading partners, after Germany, Japan, Mexico, Canada and China. At the start of 2019, the country was China’s fourth largest trading partner behind Japan, Hong Kong and the U.S., according to World’s Top Exports.

Monday, March 4

• GDP (Final Q4’18)
• CPI (Feb)

Coming off the weekend, South Korea will produce a final reading on its GDP growth rate for the fourth quarter of 2018 after data indicated 2% quarter-over-quarter growth to 3.1% year-on-year – the fastest pace since Q3’17.

Also, CPI is on tap for February following a 0.1% decline from the prior month to 104.24.