Korea's 2012 Growth Likely to Close at 2.2%, 2013 GDP Projected at 2.9%

Korea's economic growth in 2012 and 2013 are projected to reach 2.2% and 2.9%, respectively. The rates have been downwardly adjusted by 0.4 and 0.3 percentage point respectively from the 2.6% and 3.3% projected in August this year. The adjustments were a result of exports being forecasted to remain at single-digit growth due to a decline in the won-U.S. dollar exchange rate, intensified export competition and strengthened trade protectionism trends amid a stagnant global economic recovery. Significant improvement also will be difficult to achieve due to the household debt burden, fall in housing prices and limitations on policy flexibility.

In terms of the final demand sector, private consumption is expected to stay in the 2% range despite upward pressure on purchasing power such as export growth and a decline in the won-U.S. dollar exchange rate. However, slower than expected recovery of the housing market and employment will offset the increase in demand. Facility investment may rebound but is expected to achieve only a mild recovery at the 3% level due to a slow domestic demand recovery in addition to weak export growth. Notwithstanding an SOC budget increase, construction investment is likely to record a low growth rate of 1.6% in 2013, as a result of a slowdown in the construction of private housing.

Consumer Price Growth to Remain Stable at 2.7%, Won-U.S. Dollar Fx-Rate to Mark 1,054 Won per Dollar on Annual Average

Continuing from a 2.3% expansion in 2012, consumer prices are expected to maintain the 2.5% level of stable growth in 2013, because the value of the won will appreciate and the deflation gap may continue due to a recovery in internal and external demand. With exports growing faster than imports, influenced by the stronger won, and the service balance returning to a deficit, the current account balance is expected to contract to US$28.9 billion in 2013 from this year's US$39.5 billion. The won-U.S. dollar exchange rate is predicted to decline to an annual average of 1,140 based on favorable supply and demand environments, easing of the global economic recession, continuation of a surplus in the current account, upgrade in the national credit rating and other factors.

Growth for 2013 May Drop to 1.8% with Internal & External Risks, Including Re-Emergence of Eurozone Crisis, Translated Into Reality

If the global economic growth slows due to the realization of external risks, including a re-emergence of the eurozone crisis, the U.S. fiscal cliff effects and China's growth slowdown, Korea’'s economic growth for 2013 is expected to drop to 2.3% from the projected rate of 2.9%. In addition, if facility investment shrinks significantly due to internal uncertainties, such as the presidential election aftereffects, and ‘'economic democratization’' pledges, growth for 2013 may decline even further to 1.8%.

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