South Korea Business Forecast Q1 2007

Content

• Executive Summary
  • Risks Dominate In 2007
• Chapter 1: Political Outlook
  • SWOT Analysis
  • BMI Political Risk Ratings
  • While President Roh Moo-hyun will remain a lame duck in the run up to the December 2007 elections which will
  • decide his successor, it is looking increasingly unlikely that the ruling Uri party will retain the presidency this year
  • Furthermore, the future of the party itself is becoming increasingly uncertain
  • Domestic Political Outlook
  • Bleak Outlook For Roh and Ruling Uri Party
  • Foreign Policy
  • North-South Engagement To Continue... Beyond 2008
  • South Korea looks set to maintain its policy of engagement with the North, despite the latter's October 9 nuclear
  • test Although the main opposition Grand National Party (GNP) - which favours a tougher policy towards
  • Pyongyang - is well positioned to recapture the presidency in 2007, it may well find that practical realities will
  • force it to continue friendly relations with the North
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Introduction
  • Deflating The Housing 'Bubble'
  • South Korea's government has announced new measures to cool property prices, amid fears that the country
  • could be experiencing a housing 'bubble' President Roh is anxious to tackle the issue, since the formation of
  • a potential bubble is clouding monetary policy and posing a real risk of a hard landing for the economy, at a
  • time when China and the US (Korea's top two export destinations) are also slowing
  • Economic Activity
  • Growing Headwinds
  • Concerns over slowing growth in South Korea remain, with the economy facing several potential headwinds,
  • including increased security risks as a result of the North's recent nuclear test, which could further constrain
  • domestic demand and deter foreign investors, denting growth in 2007 However, South Korea's growth momentum
  • remains intact, and our core scenario does not envisage a marked slowdown
  • Table: GDP, Output & Population
  • Fiscal Policy
  • Government Plans Bigger Budget
  • The government has revealed the details of its fiscal plan for 2007, which entails a 6% increase in the budget
  • from 2006 With the extra spending mostly targeted at welfare and defence, rather than more productive sectors
  • of the economy (such as infrastructure and industry), the fiscal expansion could undermine South Korea's
  • economic expansion and threaten the stability of government finances, resulting in a growing budget deficit
  • and rising public debt
  • Table: Government Finance Consolidated Central Government (KRWbn)
  • Monetary Policy
  • Rates To Remain Steady
  • South Korea's slowing inflation, accompanied by a softer growth outlook, means that the central bank will likely
  • leave interest rates on hold over the coming months However, concerns over rising property prices represent an
  • upside risk to our core scenario
  • Table: Consumer Prices
  • Exchange Rate Policy
  • KRW Strength Generating Concern
  • The KRW has experienced an impressive rally in recent weeks, and the unit's continued strength has renewed
  • concerns about the consequences for South Korea's export competitiveness However, we remain sceptical
  • about the effectiveness of any efforts by the central bank to curb the won's rise, and see scope for further
  • appreciation over the coming months
• Chapter 3: Special Report
  • BMI Sovereign Risk Ratings
  • What And Where Are The Risks?
  • Table: BMI Sovereign RIsk Ratings
  • Asia
  • Rising Political Risks A Constraint
  • Table: Asia Sovereign Ratings - Evolution of Ability to Pay
  • Table: Asia Sovereign Ratings - Evolution of Willingness to Pay
• Chapter 4: Business Environment
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Legal Framework
  • Labour Force
  • Table: Demographic Indicators (2005)
  • Table: Employment Indicators
  • Foreign Investment Policy
  • Table: Asia, Annual FDI Inflows
  • Free Trade Zones
  • Table: South Korea, Annual FDI Inflows
  • Foreign Trade Regime
  • Table: Top Export Destinations, US$mn
  • Table: value of exports by category, us$mn
  • Tax Regime
• Chapter 5: Key Sectors
  • Food & Drink
  • BMI forecasts that the country's spirits industry is going to expand by 171% in volume terms to 2010, while the
  • more mature beer industry will grow by just 104% over the same period
  • Table: South Korea MGR Sales Value By Format - Historical Data & Forecasts
  • Table: Food Consumption Indicators - Historical Data & Forecasts
  • Oil & Gas
  • Industry Forecast Scenario
  • Several South Korea oil companies, including state interests, are engaged in securing international upstream
  • production, but the domestic market offers little potential for oil or gas Oil consumption is forecast to increase
  • by around 1% per annum to 2010, implying demand of 243mn b/d by the end of the forecast period Gas
  • demand is forecast to rise from 2005's 333bcm to 425bcm by the end of the decade, with the bulk of the
  • fuel being imported in the form of LNG
  • Table: South Korea Oil & Gas - Historic Data & Forecasts