South Korea Consumer & Retail Report Q4 2017
Despite stronger-than-expected economic performance during H117, we hold a cautious outlook for the country's consumer sectors. The volatile security situation in the Korean peninsula and tensions with China will weigh on consumer confidence and tourism-facing industries in the near term. On the domestic front, excessive youth unemployment and high levels of household indebtedness will remain major structural issues constraining household spending. That said, stable income growth and low inflation will support sustained albeit unimpressive increases in consumer spending in the medium term.
We forecast South Korea's modest private consumption real growth to remain unchanged in 2017, positing 2.5% expansion in y-o-y terms. This growth rate lags behind historical average of 3.3% during 2000-2016.
We note that high levels of household debt pose a significant downside risk to our consumer outlook should we see a sudden sharp rise in interest rates or rapid deleveraging forced upon the economy. Bank for International Settlements (BIS) reported that the country's household debt-to-GDP ratio stood at 92.8% at the end of 2016 or 4.7 percentage points higher than a year ago.
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