Country Report South Korea November 2009

Summary

The president, Lee Myung-bak of the ruling Grand National Party (GNP), will continue to face difficulties in maintaining the full support of his party and in improving public confidence in his abilities as a leader.
The GNP won two of the five available seats in the by-elections that were held on October 28th. This is not a major endorsement, but it is an improvement on its failure to win any of the seats in the by-elections in April.
South Korea is holding talks with North Korea about a possible meeting between Lee Myung-bak and the North Korean leader, Kim Jong-il. However, the Economist Intelligence Unit does not expect a summit soon.
On October 9th, the Bank of Korea (BOK, the central bank) kept its target policy rate unchanged, at 2%. The BOK may begin a monetary tightening cycle as early as the first quarter of 2010, given the improving economic outlook.
The economy grew by 2.9% quarter on quarter in the third quarter. This was stronger than we had expected. We have therefore revised our estimate for real GDP growth in 2009 to rise of 0.6%, from a contraction of 1% previously.

By-elections for five vacant seats in the National Assembly (parliament) were held on October 28th. The centre-left main opposition Democratic Party won three seats and the GNP took two.
On September 25th, a notoriously militant union, which deals with worker negotiations at a South Korean car maker, Hyundai Motors, elected Lim Sung-kyu as its first moderate leader in 15 years.
In late October Lee Myung-bak attended summit meetings associated with Association of South-East Asian Nations (ASEAN). Lee Myung-bak is keen to expand South Korea's ties with South-east Asia.
The green shoots of South Korea's economic recovery, which began to emerge in the second quarter of 2009, have continued to remain in evidence, including domestic factories running at higher capacity.
The financial-sector regulator, the Financial Supervisory Service, is using pre-emptive measures to try to prevent companies from going bankrupt and asset price bubbles from emerging.
In year-on-year terms, real GDP edged up by 0.6% in the third quarter of 2009 after three consecutive quarters of contraction.
The weakness of the won in international foreign-exchange markets has been a boon for the local economy, which is dependent on merchandise exports.