North-South Korea summit brought plans for economic integration – Standard Chartered

The outcome of the 27 April North-South Korea summit was more positive than expected as the leaders agreed to a permanent peace treaty, the “complete denuclearisation” of the Korean peninsula, and economic integration, explains the research team at Standard Chartered.

Key Quotes

“In terms of popular opinion, more than 78% of South Koreans now say they trust North Korean leader Kim Jong-un, according to a post-summit poll by local broadcaster MBC.”

“Near-term economic benefits are likely to be limited, since UN sanctions on North Korea will be removed only when the regime implements full denuclearisation. However, we see significant potential upside for South Korea’s economy, particularly the equity market, if a permanent peace treaty removes the ‘Korea discount’.”

“Closer economic integration could also bring long-term benefits to both economies. The ‘new economic map’ initiative proposed by South Korean President Moon Jae-in is a blueprint for unification, job creation, and higher growth through inter-Korean economic cooperation. There are concerns about the costs South Korea may incur, but we expect this burden to be manageable if South Korea allocates part of its USD 40bn military budget for economic cooperation and North Korea liberalises its market in a similar way to China or Vietnam.”

“Positive sentiment in the wake of the summit aligns well with our USD-KRW forecast. We expect USD-KRW to resume its downtrend and move below 1,050 on positive sentiment and a weaker USD.”