South Korea Business Forecast Report Q2 2008

Publication Date	February 2008
Publisher	Business Monitor
Product Type	Report
Pages	57
ISBN Number	1745-0721
Product Code	BMI00292

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Summary

Domestic Factors To Lead Growth In 2008 Domestic consumption looks likely to be the main driver of economic growth in 2008, as high employment and rising wages combine with anticipation of a brighter future under new President Lee Myung-bak. We do, however, see downside risks to our 5 .1% GDP forecast for 2008 in the form of a deteriorating global outlook that is likely to affect exports and corporate investment over the year. In addition, conservative factions within the Grand National Party (GNP) are likely to oppose Lee's most ambitious proposals, such as the KRW16trn Great Korea Canal. Risks to our medium-term forecasts are on the upside as the new administration aims to boost GDP growth by cutting taxes and boosting investment.

We are expecting the centre-right GNP to win the parliamentary elections on April 9, giving Lee a strong mandate to pursue reform. There are, however, growing signs of a continued rift in the party between the economic liberals led by President Lee Myung-bak and the conservative core represented by former party chair Park Geun-hye, meaning that Lee may find it hard to attain support for some of his most ambitious projects. Nevertheless, we expect a considerable swing towards more business-friendly government policies in the next five years.

We see mounting headwinds for the South Korean economy going into 2008, as growing concerns about the US and global economy dim the outlook for South Korean exports. We are forecasting export growth to fall from 14.2% in 2007 to 10.3% in 2008, meaning that domestic consumption will take over as a driver of the economy. Low unemployment and higher wages are likely to boost both consumption and inflation, which will also be underpinned by high commodity prices. This will give little room for the Bank of Korea to ease monetary policy, despite its concerns about the economy.

With Lee Myung-bak having won the presidency and the GNP likely to win the parliamentary elections in April 2008, we foresee a substantial improvement of the South Korean business environment going forward. Lee has pledged to cut regulation and taxes in order to boost economic growth, which would, if implemented, constitute a marked break with the interventionist economic policies of outgoing president Roh Moo-hyun. Furthermore, expected free trade deals with the US, the EU and China should widen the opportunities of South Korea's important export sector in the coming years.

Content

Executive Sunmary
Domestic Factors To Lead Growth In 2008
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Strong Mandate For Reform
The landslide victory of Lee Myung-bak in the presidential elections on December 19 2007 heralds tax cuts,
labour market reform and the dismantlement of regulations in the housing market and financial sector over
the next five years.
Foreign Policy
Expect Greater Pragmatism Under Lee
We expect incoming president Lee Myung-bak to adopt a greater degree of pragmatism in foreign policy than
his predecessor, which will include improving strained relations with the US and Japan.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Domestic Factors To Drive Growth In 2008
We maintain our 2008 GDP growth target of 5.1%, despite growing indications of an export-led slowdown, as
we believe that domestic demand will take over the baton as the main driver of the economy in 2008.
Economic Policy
Lee's Deregulation A Major Boost To Business
The inauguration of Lee Myung-bak, of the conservative Grand National Party, as South Korean president on
February 25 will herald an era of staunchly pro-business policy after almost a decade of centre-left rule.
Monetary Policy
Between A BoK And A Hard Place
The Bank of Korea (BoK) will face a policy dilemma in 2008 as it weighs inflationary pressures against adverse
conditions for the important export sector.
Chapter 3: Special Report
Looking Beyond 2008
US: The Rebalancing Act
Unwinding The Imbalances
We believe that a substantial, multi-year shift in the US external accounts is under way. A weak US dollar and
subdued domestic consumption should lead to a narrowing in the US's structural current account deficit.
China: What If We're All Wrong?
Our Core Scenario For China
We are retaining our positive headline growth projections for China across the forecast period to 2012, with
our expectations of the continued success of the urbanisation process and export-driven growth model
underpinning our assumptions.
Japan: Immigration Key To Long-Term Growth
Demographic Woes Portend Long-Term Decline
Immigration remains the only realistic way that Japan can overcome its long-term economic challenges.
Business Monitor International Ltd
south korea Q2 2008
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Introduction
Recent Developments
South Korea's business environment should receive a significant boost from the new government's
deregulation drive.
Infrastructure
Market Orientation
Operational Risk
Chapter 5: Key Sectors
Defence
Pharmaceuticals & Healthcare
Executive Summary
Drug market expenditure is expected to reach just over US$24.4bn at consumer prices in 2011,
supported by the solid performance of local tender against the US dollar and the gradual
improvement of market conditions.
List of Tables
- Table: Economic Activity
- Table: Monetary Policy
- Table: BMI Business And Operational Risk Ratings
- Table: BMI Legal Framework Ratings
- Table: Asia, FDI Inflows
- Table: BMI Trade Ratings
- Table: South Korea Defence Sector - Historical Data & Forecasts
- Table: South Korea Drug Market Expenditure Forecasts

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Product features / use

Scope	Expert Insight/Opinion
Level	General Industry Strategies
Data	Detailed Market Forecasts
Profiles	Profiles of Key Companies
Features	Contains SWOT Analysis
Extra Info	Consumer Trends Highlighted