Country Report South Korea March 2009

Summary

The president, Lee Myung-bak, will find it difficult to rebuild his popularity amid the global economic turmoil that is undermining the domestic economy and resulting in rising unemployment.
The most immediate foreign policy challenge facing the government is how to react to what appears to be an imminent test of a long-range missile by North Korea. The launch will further undermine relations between the two states.
On February 12th the Bank of Korea (BOK, the central bank) cut its key policy interest rate by 50 basis points owing to the deteriorating economic outlook. Policy rates will be cut further in the remainder of the year.
The Economist Intelligence Unit has revised downwards its forecast for real GDP in 2009 to a contraction of 10.1% (from a fall of 5.9% previously). This reflects, in part, the poor economic performance in recent months.
The downward revision in our forecast for domestic demand in 2009 will result in more excess capacity than we had previously assumed. As a result, we now expect consumer prices to fall by 1.1% in 2009 (0.6% previously).

Tensions remain between the ruling Grand National Party and the main opposition, the centre-left Democratic Party. Rival members have fought in a National Assembly (parliament) committee.
In February North Korea suggested that it may soon test a long-range missile. The country has hinted that it wants to launch a satellite, rather than carry out a weapons test, but this has done little to ease concerns in South Korea.
On February 19th-20th the new US secretary of state, Hillary Clinton, visited South Korea as one of four legs on her first overseas trip. Although she spent only 21 hours in South Korea, the local press viewed it as a successful visit.
Yoon Jeung-hyun became minister of strategy and finance in February. He confessed on taking office that he was highly pessimistic about South Korea's economic outlook for 2009.
Unfreezing the credit market has been an elusive task for the Ministry of Strategy and Finance, the Financial Services Commission and the BOK, which are working together to encourage banks to start lending again.
South Korea's real GDP shrank by 3.4% year on year in the fourth quarter of 2008, according to the BOK. Full-year growth halved compared with its 2007 rate, to 2.6%.
In 2008 South Korea recorded its first annual deficit on the current account since 1997. The government expects the account to return to surplus in 2009.

Source: Country Report

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