Economic Growth to Improve from -0.8% (2009) to 3.2% (2010)

The Korean economy is likely to experience a mild decline of -0.8% in 2009. Still, the projection is an improvement compared to last July when the growth rate was forecast to be around -1.9% for the year. The upward revision reflects recent improvements in international financial market conditions and the performances behind economic indicators as fiscal stimulus measures take effect. The recovery trend is going to continue into the next year, but the rebound will be somewhat limited. As a result, the economy is expected to post a modest growth rate of 3.2% in 2010.

The economy will get off to a rather slow start in 2010 as the boost from expansionary fiscal policies disappears. Consequently, the economic growth rate for the first half of 2010 will be 0.5%. However, as the economy gradually returns to its normal growth trend, the rate of growth will accelerate to 2.7% in the second half of the year. The assumptions in this projection are that the won-U.S. dollar exchange rate would appreciate to the 1,100 won level as a result of the national budget for next year being appraised as a de-facto retrenchment, a global trend of dollar weakening, and a current account surplus.

Current Account to Post US$13.1 Bil. Surplus and Consumer Prices to Rise 3.0% in 2010

Due to rises in international oil prices and the value of the Korean won against the dollar, the current account surplus is expected to decrease to US$13.1 billion in 2010 from US$30.4 billion in 2009.

Rising prices of oil and raw materials will fuel the upward pressure on consumer prices. However, due to a lukewarm economic recovery and a stronger won, the consumer price level is expected to rise somewhat gradually and reach 3% for 2010.

Efforts to Enhance Growth Potential Required

A top policy priority in the aftermath of the recent crisis is to find a way to put the economy back on the pre-crisis growth trend. If a new and lower trend growth rate is accepted as a norm, as happened after the 1997 crisis, the national economy will not be able to escape the US$20,000 per-capita income trap in the near term.

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