Wins still unclear in the Korean market

It's still an open game as the country reports a mixed bag of rebound in the GDP and unexpected declines in exports.

Increase in exports and healthy consumer demand drive industrial production up in the first quarter but things seem primed for a slowdown, with worsening inventory-to-shipment ratio, higher oil prices, and impending overseas dividend payments. 

Here's more from the DBS Group Research:

The improvement in Jan-Feb data almost guaranteed a strong rebound in 1Q GDP (probably exceeding our forecast of 4% QoQ saar to reach 5%). Industrial production rose 0.8% MoM sa in February on top of the 3.2% gains in January. This supply expansion was mainly driven by the increase in exports (real shipments for exports: 1.5% in Feb), and the release of pent-up consumer demand (retail sales: 2.6%). Equipment investment normalized to a lower level after the strong recovery in the start of the year. Thanks to the boost from pent-up consumer demand, services output also rose a solid 0.9% in February. Meanwhile, the construction sector seems to be heading towards a recovery, finally, driven by the increased orders of civil engineering works.

Going into March, the available data don’t seem to be encouraging, however. After Eurozone and China both reported a weak PMI, Korea’s exports also recorded an unexpected decline of -1.4% YoY in March. Should external demand fall short of expectations, the risk of an inventory correction in Korea’s manufacturing sector (particularly electronics) may increase in the coming quarters. Note that producers’ overall shipments grew only 0.5% in February, while inventory jumped 1.4%, therefore the inventory-to-shipment ratio has worsened again to 1.10 from 1.09.

The Bank of Korea is likely to remain alert to the downside risks on growth (European recession, China’s growth slowdown, high oil prices), and prefer to keep monetary policy accommodative for the time being. Meanwhile, the BOK should be happy to see the fact that inflation has finally fallen below the 3% mark, to 2.6% YoY in March. The core CPI items including cultural & recreation and eating out & accommodation recorded a significant slowdown in their prices growth, reflecting the easing of demand-driven price pressures in the domestic economy.

On the external front, trade balance maintained a surplus of USD 2.3bn in March, compared to USD 1.5bn in February. We remain conservative about the current account outlook in the short term. In addition to the drags from high oil prices that erode trade surplus, the income account traditionally weakens in March-April, as local companies make dividend payments to overseas investors.