Growth Forecast for 2009 at -3.7%

The growth rate of the national economy is projected to drop to -3.7% in 2009, the worst performance since 1998 when output growth had fallen to -6.9% due to the Asian financial crisis. Due to significant declines in both foreign and domestic demands, exports and facility investment are expected to post severe declines (-16.4% for exports and -11.2% for facility investment). Private consumption, a key to a sustainable economic recovery, is also likely to contract significantly (-3.9%). However, growth is likely to improve more or less in the second half (-2.1%) from the first half (-5.3%) when the effects of the government's financial market stabilization and economy-boosting polices are expected to kick in.

Current Account to Post US$13 Billion Surplus

With the imports (-21.0%) shrinking faster than exports (-16.4%) due to declines in domestic demand and the international oil prices, the current account balance is expected to record a surplus of around US$13 billion in 2009. on the other hand, declining international oil and commodities prices will help tame the inflationary pressures and keep the consumer inflation rate at a 2% range. Appreciation of the Korean won, expected in the latter half of the year, is going to be another price stabilizing factor.

Ex-rate: 1,380 won/USD in 1st Half, 1,220 won/USD in 2nd Half

The Korean won-U.S. dollar exchange rate is projected to maintain a high level of 1,380 won on average in the first half of the year owing to instabilities in the real and the financial sectors. In the second half, however, the exchange rate is expected to fall to about 1,220 won per dollar as a result of a weakening dollar and the current account surpluses. The annual average of the exchange rate between the Korean won and the U.S. dollar is going to be around 1,300 won per dollar.

Implementation of Revised Supplementary Budget May Improve Growth to -2.6% from -3.7%

If all goes well as planned, the revised supplementary budget bill, 29 trillion won's worth, will be able to boost the growth rate of the economy to -2.6%, 1.1%p higher than the current projection.

Need to Prevent Spread of Global Protectionism by Utilizing G-20 Summit

Given the importance of trade to Korea's recovery, it is essential that the government fully exploit advantages of being the next chair of the G-20 summit in 2010. Utmost priority should be given to combating the global protectionism. At the April 2008 G-20 summit in London, Korea should also actively raise awareness of the need to expand currency swaps between advanced countries, particularly key currency nations, and developing countries to help the latter overcome difficulties due to volatility in capital flows.

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