Korea Economic Update, Housing Starts & Lumber Shipments
In line with the South Korean government’s economic outlook, the Bank of Korea raised South Korea’s GDP growth forecast for 2018 to 3% on expectations of continued domestic demand recovery and robust export growth.
Consumer prices are expected to rise by 1.7% this year with the increased minimum wage regulation enforced from this year. In July last year, the South Korean government decided to raise the minimum wage by 16% to 7,530 won (US$6.60) for this year, marking the biggest jump in about two decades and this wage hike would impact consumer prices and overall economic growth.
South Korea is set to host the 2018 Winter Olympics next month in PyeongChang, Gangwon Province and the PyeongChang Olympics is expected to boost private consumption by 0.1 percentage point during the first-quarter of this year.
The easing of geopolitical risks is also likely to have a positive impact on the South Korean economy as North Korea agreed to send athletes and delegation to the Winter Olympics.
The Korean won – U.S. dollar exchange rate dropped to a three-year low of 1,061.2 won on January 2 and analysts forecast the rate fall below 1,000 won if the geopolitical risk on the Korean Peninsula eases.
The key market economic data for 2017 are as follow:
Exports soar to an all-time high of US$573.9 billion in 2017, a 16% increase from a year earlier of US$495.4 billion, on the back of an upturn in global demand.
Trade volume exceeded US$1 trillion, as imports expended 17.7% to US$478.1 billion.
Consumer prices grew 1.9% in 2017 from a year earlier, marking the steepest gain in 5 years since 2012, on the back of strong industrial goods and financial services.
Jobless rate stood at 3.3% in December, 2017, up 0.1 percentage point from a year earlier.
Due to the ongoing government intervention to curb rising house prices and cool down the overheated housing market, especially new apartment market in Seoul, South Korea’s housing starts in number of building of year-to-date November, 2017 decreased 14.6% to 90,497 buildings while that in number of units significantly decreased 23.2% to 440,382 units. Housing permits in number of buildings and units for the same period of 2017 also decreased 10.2% and 13.2% respectively to 107,308 buildings and 552,558 units from a year earlier 119,494 buildings and 636,823units.
While the overall residential construction sector struggles, the number of wood building permits in the eleven months of 2017 increased 1.7% to 15,841 buildings from a year earlier. However, the number of wood building starts for the same period decreased 6.5% to 12,954 buildings.
Total floor areas of wood building permits for the same period in 2017 increased 5.8% to 1,451,320 m2 but that of wood building starts slightly decreased 3.8% to 1,198,515 m2 from a year earlier.
BC softwood lumber export volume to South Korea for the first eleven months of 2017 decreased 5.7% to 238,184 cubic meters as compared to 252,651 cubic meters for the same period of 2016.
The market for Canadian softwood lumber in South Korea is closely linked with construction, especially the residential construction segment. The downward trajectory comes from the South Korean government’s strong intervention to limit the supply of new homes (from August 2016), especially apartments in Seoul to check rise in household debts and curb rising house prices.
However, export value for the same period slightly increased 2.8% to CAD$68.678 million as compared to CAD$66.821 million for the same period in 2016. Lumber prices in Canada has trended upward for almost two years and reached 13-year highs in July, 2016 while prices for lumber prices in the Nordic countries continue to be depressed in the U.S. dollar terms resulting their current price levels to be close to the lowest they have been in eight years.