Korea’s GDP growth projected at 2.9% in the 2nd half, Korea’s 2013 annual economic growth likely to close at 2.3%

The Korean economy for 2013 is expected to grow by 2.3%, down 0.6 percentage point from 2.9% projected in March 2013. This downward adjustment is due to uncertainties of external conditions for the global economic recovery, owing to US Fed’s downsizing of QE, China’s shift toward “quality growth” and unintended side effects of Japan’s ‘Abenomics.’ Recovery in the domestic demand is also limited due to households “deleveraging”, housing market slowdown, and excessive discussion on the so-called “economic democratization.”

▷In the second half, private consumption growth will stop its rise at 2.0% (1.7% per annum), affected by risk factors such as increasing household debt burdens, worsening quality of job growth, and readjustment of house prices and rent level.

▷Equipment investment is expected to escape negative growth by a narrow margin attributable to base effect. But the rate at which it is growing is expected to slow down at around the 4% range (-2.0% per annum) due to dampened investment sentiment owing to slow export growth and impact of economic democratization.

▷Construction investment expects to have slow recovery despite SOC budget increase and base effect, offset by the prolonged stagnation in the housing business conditions.

Consumer price growth remains low at 2.4%, KRW/USD to mark 1,086

Consumer prices are projected to remain low at 2.4% (1.8% per annum) for the second half of 2013, influenced by decline in the prices of raw materials and KRW/USD in addition to existing low pressure on the demand side.

Despite the slow recovery in exports, current account surpluses will be maintained at US$20 billion. This is attributable to delayed domestic economic recovery, which slow down the pace of the import increase outstripping that of exports.

KRW/USD is predicted to show a descending trend based on a current account surplus and sound Korean capital market conditions. However the downbeat of KRW/USD shall be confined following the downsizing of QE in the U.S., resulting KRW/USD hovering around 1,086 in average for the second half of 2013.

Need to minimize FX volatility and improve non-price competitiveness

A slump in key exports such as steel, automobile, semiconductors and shipbuilding is alarming. Amid the prolonged global economic recession, a recent weakening of the yen is one of the key downside risks associated with such impacts. In order to minimize shocks, the government should focus on stabilizing foreign exchange market and seek for ways to invigorate market functions by different sectors and sizes, while industries make greater efforts to strengthen non-price competiveness.

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