Country Report South Korea January 2009

Summary

The president, Lee Myung-bak, will have his work cut out to rebuild the popularity that swept him to a landslide election victory. Global economic turmoil will make it hard for him to deliver on promised economic growth.
North Korea has imposed restrictions on the de facto border between it and South Korea. This could raise tensions further between the two sides, and acts as another obstacle in persuading the North to stop its nuclear programme.
On December 11th the Bank of Korea (BOK, South Korea's central bank) cut its key policy interest rate by 100 basis points, owing to concerns that domestic demand is deteriorating sharply. These worries will drive policy in 2009.
The Economist Intelligence Unit has revised down its forecast for global real GDP growth. As a result, we now expect the South Korean economy to contract by 2.8% in 2009 (we previously forecast a contraction of 1.7%).
Weak domestic demand in 2009 will lead to significant excess capacity, even as global commodity prices drop sharply. As a result, we have revised down our forecast for average consumer price inflation next year to 0.6% (from 2.8%).

Of the 2,787 bills submitted since the new National Assembly (parliament) was inaugurated in June 2008, only nine had been approved by the end of November. This reflects obstruction of legislation by the opposition parties.
The Supreme Court has upheld the convictions of two members of parliament for violating electoral laws, meaning that they now have to forfeit their seats.
The latest round of plenary six-party talks on North Koreas nuclear programme, which were held in China on December 8th-11th, got nowhere. The main sticking point was how to verify any cessation of nuclear activities.
The authorities have been providing liquidity support to the financial system. The Financial Services Commission has launched an emergency task force to help financially troubled companies get access to financing.
The government and the BOK have been stepping up efforts to support the real economy. The government is substantially increasing spending on public works projects, while the BOK's rate cut cycle is picking up steam.
In December the BOK unveiled its economic outlook for 2009, with warnings of a major slowdown. Under its best-case scenario for the world economy growing at a pace of 1.9% in 2009, South Korea's economy will expand by 2%.
South Korea became a net debtor at the end of September for the first time in eight years, as foreign investors fled the local capital market.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52