South Korea’s economic growth expected to decline

US investment banks bear bad news . . .

U.S.-based investment banks have begun to release initial projections of the impact of the escalating Japan-South Korea trade spat on South Korea’s economy following Japan’s decision last week to restrict exports of semiconductor parts, among other measures. This recent dispute was triggered in retaliation of a 2018 South Korean court ruling forcing Japanese firms to compensate Korean victims of forced labour during Japan’s colonial rule over Korea. Morgan Stanley projects South Korea’s economy to grow at 1.8% for the rest of the year and 1.7% in 2020, and believes these figures could worsen if Japan’s export restrictions were to expand to other sectors. Standard & Poor’s, Fitch Ratings, and Goldman Sachs all adjusted their growth expectation for South Korea down from 2.4% to 2.5% to a range of 2.0% and 2.1% citing global trade concerns and weaker domestic consumption.

More woes for President Moon . . .

For South Korean President Moon Jae In, this news couldn’t come at a worse time. In the first quarter of 2019 South Korea saw GDP decline by 0.4% compared to the previous quarter. And recent reports indicate the number of jobless Koreans reached 1.14 million as of June 30, the highest number in more than a decade. Youth unemployment, which is also up 1.4%, and an overall slowing economy have been a lingering issues for the Moon government. While President Moon hasn’t directly addressed the economic impacts the trade spat with Japan is having, it’s expected the Korean central bank will cut interest rates to stimulate domestic consumption.

Lessons and impacts . . .

Canadians should be keeping a close eye on the Japanese-South Korean trade dispute for two key reasons: it is a reminder that (1) history plays an import role in business and international relations in the region, speaking to the need for Canadian Asia-related competencies, and, (2) many South Korean value-added technology goods that Canadians consume rely on Japanese material inputs, which could potentially impact our own domestic market and Canada’s trade diversification strategy.

READ MORE