South Korea Business Forecast Report

Q4 2009

Publication Date	September 2009
Publisher	Business Monitor
Product Type	Report
Pages	64
ISBN Number	not applicable
Product Code	BMI02716

Buy this product or for assistance call +44 20 7060 7474

PDF £250.00$416 | €280

FAX Order above formats by FAX

Summary

Government Pulling Out All The Stops To Support Economy After having bottomed out in Q109, the South Korean economy posted strong sequential growth in Q209, expanding by 2.6% quarter-on-quarter. Given the increasing breadth of the economic recovery since then, we have raised our full-year 2009 and 2010 growth forecasts from -1.9% and 1.8% to -1.1% and 3.2%, respectively. This projection is based on expectations of gradual inventory restocking in Q409, as well as a continued positive contribution from the export sector. Private consumption, however, is likely to remain weak in the near term and into 2010, before making a fuller recovery in H210.

While the recent easing of relations with Pyongyang and the broadening recovery of the economy have been a boon for the ruling Grand National Party (GNP), its ambitious programme of economic reform still faces an uphill battle. The main obstacle to the passage of these reforms is continued opposition in parliament as the GNP's popularity remains impaired by the poor state of the economy.

Although tensions with North Korea have cooled down for the moment, the underlying disputes with the South and the US are still unresolved, and this means that Pyongyang's mood is subject to abrupt change.

On the economic front, the main challenge facing the authorities is to devise an exit strategy from fiscal and monetary stimulus that does not stifle economic recovery. On the one hand, the Bank of Korea (BoK) is again becoming concerned about the pace of housing price inflation in Seoul and other metropolitan areas, yet on the other, the Finance Ministry is calling for low rates to be maintained until the strength of the recovery is more certain. Despite the bank's obligation to implement policy in harmony with the government, we expect it to start raising rates in early 2010, with an end-year (2010) target of 3.25%. A related concern for policymakers is the stronger won, which threatens to weaken the performance of the export sector.

On the business environment front, the main focus in Q409 is likely to be on the job market, with parliament set to debate a new law that would extend the limit on part-time contracts from two to four years. As part of its drive to increase South Korea's international competitiveness, the government will also continue to press deregulation in several areas of the economy, including the market for over-the-counter derivatives, in which it hopes to become a major player .

Content

Executive Summary
Government Pulling Out All The Stops To Support Economy
Chapter 1: Politicial Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Economic Reforms Still Facing Major Hurdles
- While the recent easing of relations with Pyongyang and the broadening recovery of the economy have been a boon
- for the ruling Grand National Party, its ambitious programme of economic reform still faces an uphill battle
- Table: Political Overview
- North-South Relations
- Rapprochement In Motion, But Underlying Disputes Linger
- North Korea is currently pursuing improved relations with the South and the US, following recent conciliatory
- gestures by all sides
- Long-Term Politics
- Constitutional Reform To Improve Governance?
- South Korea is likely to see a renewed push for constitutional change over the coming years, in order to address
- imbalances in the political system that lead to periodic instability
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- A Broadening Recovery
- Given the increasing breadth of economic recovery in South Korea, we have decided to upgrade our full-year 2009
- growth forecast from -1.9% to -1.1%
- Table: ECONOMIC ACTIVITY
- Balance Of Payments
- C/A Surplus To Narrow On The Back Of Rising Imports
- Following several months of strong current account surpluses, we expect South Korea's balance of payments position to
- deteriorate slightly over the coming months as imports recover from recent lows
- table: CURRENT ACCOUNT
- Currency Forecast
- Core View
- Asian FX are looking firmly bid to us on the back of an ailing US dollar, with the Korean won arguably the pick of the bunch
- Fiscal Policy
- Public Spending To Contract In H209
- In order to account for the impact of declining public expenditure growth in H209, we have revised down our full-year
- target for the fiscal deficit from KRW330trn to KRW280trn
Chapter 3: 10-Year Forecast
- The South Korean Economy To 2018
- Structural Problems To Constrain Long-Term Growth
- We are expecting annual real GDP growth in South Korea to decelerate from an average of 5.1% between 2000 and 2007
- to around 3.5% over 2012-2018 as the working age population peaks and the export-focused manufacturing sector faces
- increased competition from China in the area of high value-added goods such as cars and ships
- Table: Long-Term Macroeconomic Forecasts
Chapter 4: Special Report
- The Fate Of ???Chindia'
- Overview
- Although China and India will continue to grow during the global recession of 2009-2010, they are not immune to the
- downturn, and face a number of risks in the near term
- China And India SWOT
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TA BLE: BMI BUSINESS AND OPERAT IONAL RISK RAT INGS
- Institutions
- TA BLE: BMI LEGAL FRAMEWORK RAT INGS
- Infrastructure
- Market Orientation
- Table: Asia, FDI Annual Inflows
- Table: BMI TRADE RAT INGS
- TA BLE: TOP EXPORT DEST INAT IONS
- Operational Risk
Chapter 6: Key Sectors
- Agribusiness
- Table: Rice Production, Consumption & Trade
- Infrastructure
- Table: Economic And Construction Data
Chapter 7: BMI Global Assumptions
- Global Outlook
- Goodbye World Recession
- TA BLE: GLO BAL ASSUMPTIONS
- Table: GLO BAL And REGIONAL REAL GDP GRO WTH