Korea's 2012 GDP Growth Projected at 3.2%, Consumer Inflation at 3.5%

The Korean national economy for 2012 is expected to grow at 3.2%, down 0.3 percentage point from the 3.5% projected in October 2011. This is attributable to the acceleration of the global economic slowdown following the delay in the resolution of the European financial crisis as well as the international oil price instability related to Iran's nuclear program. Affected by a demand contraction in conjunction with the growth slowdown offsetting a portion of the price-push factors like higher international oil prices, consumer prices are likely to rise 3.5%, a slight upward adjustment of 0.1 percentage point from the previously projected rate.

Current Account Surplus to Record US$13.6 Billion, Won-USD Fx-Rate to Fall Slightly

The current account balance for 2012 is projected at a surplus of US$13.6 billion, US$800 million lower than the earlier projection. The won-US dollar exchange rate is expected to end the year at about 1,093 won, maintaining a high level in the first half due to the preference for safe assets, while posting a declining trend in the second half, influenced by easing of the financial crisis in advanced countries, recovery of the domestic economy, etc.

National Elections and Iran & North Korea-Related Geopolitical Risk Management Important

Citable as major downside risks related to the 2012 economic projection are the upward pressure on international oil prices associated with Iran’'s nuclear program, geopolitical risks associate with the power succession in North Korea and shrinkage in corporate investment related to two national elections. Through a simulation utilizing macroeconomic models, the economic growth of South Korea is projected to decline 0.7 percentage point, 0.9 percentage point and 0.2 percentage point, respectively in following cases; international oil prices rise to US$150/bbl. in the frist half due to the Iran risk; consumer sentiment, KOSPI and overseas demand decline 14%, 22% and 1% respectively; equipment investment contract about 3 percentage points further due to election uncertainties. In order to minimize shocks from the fluctuation of internal and external uncertainties, the government should mitigate excessive psychological impact on economic players, while political circles also will have to refrain from introduction of populist policies that would bring about contraction of corporate investment and worsen the nation's fiscal health.

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