Key macroeconomic indicators - GDP growth rate, prices and current account balance - are expected to get worsen in 2007 compared with this year.

Next year, GDP growth rate is projected to fall to 4.1%, 0.6% point lower than 4.7%, the growth rate forecast of this year. It is mainly due to slower export expansion and sluggish domestic demand. Negative trade conditions attributed to high oil prices and an increase in global interest rates are likely to lower the nation's trade surplus, while the national presidential election and an uncertain domestic environment are expected to negatively impact domestic demand.

The CPI, despite the slowdown in economic growth, is projected to rise to 2.7% in 2007 from 2.5%, a 0.2% point increase from this year's 2.5%. The expected increase in inflation is largely attributed to supply side factors, most notably continuing hikes of oil price. Meanwhile, the current account, with import growth outpacing export growth and an expanding service trade deficit, is projected to decline to a US$2.0 billion surplus this year and suffer a US$2.2 billion deficit in 2007.

These conditions will mean deeper stagnation in investment and job creation for the Korean economy, exacerbated by a lack of critical improvements in various regulations and practices, and by the institutional barriers to economic stimulation, not just by changes in the structure of the national economy. In order to stimulate investment and employment expansion, improvements are needed in labor market flexibility, corporate and individual income tax systems, limitations on total equity investment and restrictions related to Seoul metropolitan area.

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