Boston, MA -- (ReleaseWire) -- 06/19/2014 -- The South Korean construction sector has exhibited signs of a growth deceleration in Q413 and we believe this slowdown will continue into 2014 - we are forecasting construction real growth forecast at just 0.5% for 2014, compared to 3.6% in 2013. This is primarily because of our downbeat outlook towards all of South Korea's construction sector drivers - namely, weak macro fundamentals for residential buildings, a poor export outlook for non-residential buildings and declining government spending on infrastructure.
Some notable factors that affected infrastructure development in Q313 were:
- This slowdown in Q413 construction growth was due to a sharp slowdown in infrastructure activity. Real growth in the infrastructure sector contracted by 0.7% y-o-y in Q413, compared to a growth of 6.9% y-oy in Q313. Conversely, real growth for the residential and non-residential building sectors accelerated in Q413. Real growth for the residential building sector accelerated from 9.6% y-o-y in Q313 to 10.6% y-oy in Q413, while real growth for the non-residential sector accelerated from 3.0% y-o-y in Q313 to 7.8% y-o-y in Q413.
- Despite the muted outlook, we note that our construction growth forecast for 2014 is still significantly higher than the historical ten-year average (the sector contracted by an average of 0.26% per annum between 2004 and 2013 [based on 2010 prices]). This is because monetary conditions in South Korea remain relatively conducive for construction activity. The Bank of Korea has maintained the benchmark base rate at 2.50% since May 2013. This rate is a four-year low and in our opinion, is unlikely to change over 2014, with monetary tightening to only take place in 2015 at the earliest.
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