MNI POLICY: BOK See Korea Economy Improving, Policy Mix Helps

--Sluggish Tourist Recovery Remains Worry For Service Sector, Other Risks

By Hiroshi Inoue

     TOKYO (MNI) - South Korea's economy remains in a difficult position as it

looks to bounce back from the damaging effects of the coronavirus outbreak, but

the Bank of Korea still sees a moderate recovery through the second half of the

year, boosted by a third supplementary budget and central bank rate cuts, MNI

understands.

     The speed of the global recovery will be a big driver for South Korea's

bounceback, with a pick-up in demand for semi-conductors already seen, although

some risks remain.

     Overall exports fell 16.2% y/y in the first 20 days of June, recovering

from a 23.7% y/y across the May. Exports of semiconductors rose 7.1% y/y for a

first rise in 18 months in May and demand has continued globally into June from

data centers, smartphone manufacturers and makers of equipment targeted at home

working.

     Exports to China, a key driver of the improvement, rose about 5% y/y in

June, after falling 2.8% in the previous month, with further improvements

expected in coming months if China's economy continues to recover.

     --TOURIST TRAP

     There are concerns that the tourist trade across Korea will be slow to

recover, impeding a pick up across the service sector, as many remain sensitive

to a second wave of the virus hitting.

     Tourism across the country has suffered amid the cross-border travel

restrictions, strongly affecting travel-related service industries, including

hotels.

     There have been some fresh outbreaks in some areas of the country, but

officials are expanding polymerase chain reaction testing from what is already a

region-leading level.

     The labour market remains tough and private consumption is still weak, but

both are expected to improve in the wake of monetary and fiscal policies.

     South Korea's unemployment rate surged to its highest level in more than 10

years in May, hitting 4.5% from 3.8% in April.

     Other risks remain, including the possibility of increased trade tension

between U.S. and China, along with heightened tensions with North Korea.

     --BUDGET BOOST

     The government compiled a third supplementary budget, pumping KRW35.3

trillion, into the economy to both support businesses and protect workers.

     The BOK has lowered its base rate to a record all-time low 0.50% from 1.25%

at the beginning of this year, with the next policy-setting meeting scheduled

for July 16.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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