Boston, MA -- (SBWIRE) -- 10/16/2013 -- Heading into the tail end of 2013, in terms of relative performance, South Korea stands out as particularly vulnerable from a regional perspective, in our view. Aside from the obvious China susceptibility, the country faces myriad domestic problems, particularly in terms of over-indebtedness. Corporate balance sheets are in a poor state, and the Korean consumer is the most highly leveraged in Asia. As the export machine continues to stall, the prospects of a spike in bad debt and a seize-up in domestic demand cannot be ignored. Our bearish real GDP growth forecast of 2.6% in 2013, therefore, faces substantial downside risks. That said, South Korea's GDP expanded 1.1% quarter-on-year (q-o-q) in April-June, the strongest growth in more than two years. The growth was registered owing to stronger government spending and private consumption amid a sluggish property market and slower growth in China. Government spending climbed 2.4% q-o-q in Q2 2013, compared with a 1.2% increase in Q1 2013. Private consumption rose 0.6% in the reported period, following a 0.4% fall in Q1 2013. Construction investment increased 3.3% in Q2 2013, while facilities investment dropped 0.7%. Exports of goods and services jumped 1.5% in Q2 2013, dropping from a 3% rise in the previous quarter. The central bank intends to improve domestic demand and resilient exports to meet its economic growth forecast of 2.8% in 2013 and 4% in 2014.

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The recovery in trade is unlikely to hold up for much longer. Weakness in regional trade activity has been particularly evident in other bellwethers such as Taiwan, Hong Kong and Singapore (see 'PMI Slippage, Just The Beginning', July 2), suggesting that South Korea is likely to follow suit imminently. Moreover, our core conviction of a China slowdown is well underway and appears to be progressively intensifying, which would consequently place further weight on demand for Korean exports.

In slightly worrisome news, the amount of cargo processed at South Korean seaports was reported to have fallen by 2.7% in y-o-y terms in April, the government announced at the end of May 2013. Cargo decreased from April 2012's 91.85mn tons to this year's 90.4mn tons. The Port of Busan, however, saw 5.8mn TEUs processed, cementing its place as the fifth largest seaport in the world, the South Korean Ministry of Trade, Industry and Energy said.

Headline Industry Data

- 2013 tonnage throughput at the Port of Busan forecast to increase by 6.80%.
- 2013 tonnage throughput at the Port of Incheon forecast to grow by 1.1%.
- Container throughput at the Port of Busan is set to rise by 5.00% in 2013, while the Port of Incheon is predicted to see a 8.50% increase.
- The total value of South Korea's trade (imports plus exports) is set to enjoy real growth of 3.05% in 2013.

Key Industry Trends

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