Nomura Securities assessed that South Korea's underlying inflationary pressure has eased, according to a report released on July 10. Park Jung-woo, economist at Nomura Securities, noted that June personal services inflation declined to 3.4% year-on-year from May's 3.7%, signaling reduced baseline inflationary pressure. While headline inflation remained elevated at 3.2% in June following May's 3.1%, core inflation held steady at 2.5%. The assessment comes amid K-shaped economic growth centered on semiconductors, with limited expansion into non-semiconductor sectors constraining broader inflationary momentum.
Nomura Revises South Korea Inflation Forecasts Downward
Nomura Securities lowered its inflation projections for South Korea in response to the easing trend. The firm revised its inflation forecast to 2.6% from 2.7% and to 2.0% from 2.1%. Park Jung-woo attributed the revision to weakening personal services inflation and limited inflationary pressure despite K-shaped growth patterns, where semiconductor-driven expansion has not spread to non-semiconductor sectors.
May Economic Activity Shows Mixed Sector Performance
Park Jung-woo stated that economic activity in May continued its slowdown trajectory. Industrial production growth declined sharply due to weakening semiconductor production. Capital investment remained solid, but other sectors including construction and retail sales showed continued weakness, presenting a "mixed bag" pattern. Nominal exports surged again in June reflecting strong price effects in semiconductors and petroleum-related products, but export volume growth on a customs clearance basis declined in June. Park noted that despite the strong semiconductor cycle, there is little evidence of growth spreading to non-semiconductor sectors.
Nomura Estimates Q2 GDP Contraction and Raises Annual Growth Forecast
The Nomura-KRnow indicator, incorporating May activity data, estimates Q2 real GDP growth at -0.4% quarter-on-quarter on a seasonally adjusted basis, down from Q1's 1.8% increase. Park explained this suggests growth is returning to a trend of approximately 2%. Nomura raised its growth forecast to 2.5% from 2.4%, technically reflecting the upwardly revised Q1 growth figure.
Nomura Projects Three Rate Hikes Through January
Regarding monetary policy, Park Jung-woo stated that the Bank of Korea will not shift from its hawkish stance amid rising housing prices and continued won depreciation pressure. Nomura expects 25 basis point rate increases in July, October, and January, bringing the terminal policy rate to 3.25%.
FAQ
What did Nomura Securities report about South Korea's inflation on July 10?
Nomura Securities reported that South Korea's underlying inflationary pressure has eased, with June personal services inflation declining to 3.4% year-on-year from May's 3.7%. The firm revised its inflation forecasts downward to 2.6% and 2.0%.
How did South Korea's economic activity perform in May according to Nomura?
May economic activity showed a continued slowdown with industrial production growth declining sharply due to weakening semiconductor production. While capital investment remained solid, construction and retail sales showed continued weakness, presenting mixed sector performance with limited growth spreading beyond semiconductors.
