The growth of the Korean economy for 2008 (based on real GDP) is projected at 5.1%, higher than 4.8% expected for this year. Despite the global conomic slowdown and a stronger won, the export sector is not likely to experience significant difficulties thanks to diversified export markets and enhanced product competitiveness. With a new government in place and reduced risk of North Korean nuclear threat, domestic demand is expected to continue a steady recovery next year.

A robust recovery of domestic demand coupled with higher prices of oil and raw materials will fuel the inflationary pressures and raise the consumer prices by 2.6% in 2008, up from 2.3% this year. The current account will post a deficit in 10 years since 1998. It is expected to post US $2.0 billion deficit in 2008 largely due to the expansion of the service account deficits.

Although the international credit market is not in the clear, the overall macroeconomic conditions are, historically speaking, comparatively favorable for the new government to successfully launch economic stimulus packages. The incoming government should seize this opportunity and pursue well-defined policy objectives to boost the Korean economy. A strong priority should be given to creating more jobs. The government also needs to implement measures to revitalize the domestic demand that has been sagging for some time and to initiate regulatory as well as institutional reforms. They include creating more jobs by enhancing labor market flexibility, downsizing the public sector and reinvigorating the private sector with tax cuts, abolition of the equity investment ceiling system, and easing restrictions on development projects in the capital area.

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