Korea’s 2013 GDP Growth Projected at 2.9%, Continued in a Two-Year Low Growth Below 3%

The Korean national economy for 2013 is expected to grow at 2.9 per cent, continued by the last year of low growth below 3 per cent. This is attributable to the slowing pace of global economic recovery and a single-digit export growth, owing to a weak-yen, strong-won phenomenon and rampant trade protectionism. Considering household debt burdens, housing price decline and political limitation on stimulus measures to buoy the economy, an increase in domestic consumption is projected to have limited effect on growth. Affected by risk factors as household debt burdens, slowed job growth, and delayed recovery of housing market, the private consumption is projected to be at a low range of 2 per cent. Facility investment is expected a low recovery rate of 3 per cent due to uncertainties with regard to internal and external demand forecasts and dampened investment sentiment by a nationwide discussion of “economic democratization.” In the construction sector, a slow growth by 2.2% is expected due to continued struggle with investment growth in residential structures investment, despite an increase of SOC budget and a base effect.

The consumer price is in line with a stable growth by 2.6%, the won-dollar exchange rate is expected to be an annual average of 1,065 won/$.

The upward pressure on public service fees and prices of food has a staggered effect on the consumer price, but its economic spillover effects are limited, owing to weak external and domestic demand and the appreciation of the Korean won. Total current account surpluses forecast to decrease to US$ 30.1 billion this year from US$ 43.1 billion in the previous year, as the rate of imports increase is faster than the rate of exports due to a strong won along with the reversal of service surpluses to deficits. The won-dollar exchange rate is projected to continue to fall but the pace at which the rate is dipping is slowing down in the second half, with an annual average of 1,065 won per dollar. Possibility of outflow of foreign capital, risks associated with North Korea’s nuclear program, and exchange policy of the government will be factors that constrict won appreciation against dollar.

In need of export expansion policies such as increasing shares of final goods export among exports to China

Citable as major downside risks related to constraint factors on the export recovery of 2013 are the weakening price competitiveness of Korea’s export goods reflecting a weak-yen and strong-won trend, contraction of export following growing trade barriers in overseas markets, and decrease in export to the Chinese market owing to China’s shift in economic policy from export centered growth to growth based on domestic consumption. Following policies are suggested in order to boost export sector: mitigating shocks from a strong-won and weak-yen trend by lowering base interest rate in addition to the existing macro-prudential measures of bank levy, caps on banks’ foreign exchange forward positions, and taxes on foreign investment in local bonds; fortifying against trade protectionism through strengthen public-private partnership and creating global supply chains; and enhancing the shares of final goods among exports to China.

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