South Korea Business Forecast Report Q3 2008

Publication Date	May 2008
Publisher	Business Monitor
Product Type	Report
Pages	72
ISBN Number	1745-0721
Product Code	BMI02050

Price

£250.00
approximately: $384 | €294

PDF immediate delivery

Order above formats by FAX

Summary

Risks To Domestic Demand Dominate The downturn in domestic demand in Q108 bodes ill for the economy in 008 and we have therefore lowered our GDP forecast from .1% to .7%. We see the risks to this forecast being evenly balanced as strong growth in China and other emerging markets helps to support the export sector and fiscal stimulus offsets weak private consumption. The strong mandate for President Lee Myung-bak won in the parliamentary elections in April will raise the prospects for pro-growth economic policy, bringing upside risks to our 009- 01 forecasts. We believe Lee will improve relations with both Tokyo and Washington, but that progress for bilateral free trade agreements with Japan and the US will be limited. Meanwhile, North Korea continues to be a threat to regional stability and is unlikely to denuclearise.

The parliamentary elections on April 9 proved to be a swoop for South Korean conservatives after ten years of liberal rule. This should give a strong mandate for President Lee Myung-bak to pursue economic reform. Internal splits within Lee's Grand National Party are, however, likely to inhibit his most ambitious plans such as the KRW16trn (US$16bn) Great Korea Canal. Indeed, we believe that opposition from the supporters of intra-party rival Park Geun-hye will be more troublesome for Lee than that from the fractured liberal camp. In inter-Korean relations, we foresee less progress under Lee than under his liberal predecessors although he will seek to maintain engagement out of necessity.

External demand remained firm in Q108 with latest data revealing exports increased by 18.6% y-o-y to a record US$ 6bn in March. This dovetails with our view that strong growth in China and other emerging markets will compensate for weaker demand from G economies. Indeed, we see weakness in domestic demand, which was evident in Q108, as being the greater risk to economic growth. Fiscal stimulus should add 0.1-0.5 pps to this year's GDP growth figure, but it remains uncertain if this will fully compensate for weaker private consumption and corporate investment.

Growth in 009 and beyond should be boosted by deregulation and tax cuts, while the ageing population and competition from low-cost China remain as threats to long-term growth.

The new administration has already begun its efforts to improve business conditions after 10 years of increasing government intervention in the economy. Lee has vowed to raise growth to 7% by cutting regulation to a minimum and lowering taxes, and has also promised to boost foreign investment. However, many fear that he will favour the domestic chaebol industrial conglomerates and thus continue the strong relationship between the country's business and political elites.

Deregulation in the banking sector should improve its access to capital, but also carries risks of banks becoming dominated and abused by the chaebol.

Content

Executive Summary5
Risks to Dominate Demand Dominate
Chapter 1: Political Outlook6
- SWOT analysis
- BMI Political risk ratings
- Domestic Politics8
- Elections Give Conditional Support For reform
- We believe the parliamentary elections on April 9 accorded President Lee Myung-bak with a firm mandate to
- pursue economic reform
- Table: South Korea Political overview
- North-South relations
- Can Lee Stay the Course With Pyongyang?
- President Lee Myung-bak's moves to improve relations with the US and Japan will continue to strain South
- Korea's ties with the North, and we envisage a cool period in inter-Korean relations
Chapter 2: economic outlook
- SWot analysis13
- BMI economic risk ratings
- Economic Activity
- BMI revises Down 2008 Growth Forecast to 4.7%
- We have revised down our 2008 GDP forecast from 5.1% to 4.7% as the loss of momentum in the first quarter
- was more severe than we had expected
- Table: economic activity
- Balance of Payments
- Current account Likely to Improve In h208
- South Korea's deteriorating current account has been a prime focus so far this year as a weakening balance of
- payments has weighed on the currency
- Table: Balance of Payments
- Monetary Policy
- BMI retains hawkish rate View
- We retain our view that the Bank of Korea (BoK) will not cut rates any time soon as we believe inflationary
- pressures will continue to limit the leeway for monetary easing
- Table: Monetary Policy20
- Foreign trade regime
- Significant Steps, But Barriers To FTAs Remain
- We believe the agreement by South Korea to allow US beef imports is a significant step towards ratification of
- the US-South Korea free trade agreement (FTA) in the US Congress
- Banking Sector
- Banking Sector: Five Key risks
- Although South Korea is undoubtedly one of the world's greatest economic success stories of the past 50 years,
- the real question is where the country goes from here
- Long-term Prospects In Focus
Chapter 3: Special report
- Business outlook For Global Frontier Markets
- Growing Fast on the New Frontier
- The 41 states that BMI examines in a new report on our online service may make up only a small slice of the
- world economy, but they possess characteristics that will see them gain importance in the eyes of investors
- and global businesses over the coming years
- Frontier Investment
- table: Frontier Markets - Key Data and Projections For top 10 Countries31
- Table: GDP Per Capita, US$ (In Order Of % Increase)
- Table: Diversify Through Frontier Markets - Correlation Coefficients January 2004-April 2008
- table: Frontier Market Indices34
- regional overview
- From hidden Dragons to Final Frontiers35
- Laos
- Neighbouring economies the Key to Growth36
- Laos's GDP growth has been boosted in recent years as neighbours China, Thailand and Vietnam compete for
- its natural resources. GDP expansion in 2007 has been estimated at 7.6% and we see annual growth remaining
- above 7% for our five-year forecast period
- Yemen
- Huge Potential, But Don't Bank On GCC Membership
- Markets do not come much more frontier than Yemen, and, as would be expected, there is huge potential for
- development, with the prospect of eventual GCC membership likely to act a key investment pull
- table: Yemen- economic activity
- Democratic republic of the Congo
- Mining Industry to Drive Growth41
- The Democratic Republic of the Congo's mining industry will be a key driver of growth and is likely to attract
- significant levels of FDI, with our real GDP forecasts standing at 8.3% and 7.9% in 2008 and 2009, respectively
- Table: Democratic republic of the CoNGo - economic activity41
- Cuba
- Investment Prospects after Fidel
- The accession of a new leadership structure in Cuba has sparked excitement that the 45-year-old trade embargo
- with the US may be lifted and Cuba may move toward market liberalisation
- Table: Cuba Macroeconomic Data and Forecasts45
- Mongolia
- Minerals to Drive economic Boom
- Mongolia is in the midst of a massive resource-led economic boom that should lift GDP growth into the double
- digits and underpin robust increases in exports and inflows of foreign investment capital over the long term
- table: Mongolia - economic activity
Chapter 4: Business environment48
- SWot analysis48
- BMI Business environment risk ratings49
- Business environment outlook
- table: BMI Business and operational risk ratings
- Institutions
- Table: BmI Legal Framework ratings53
- Infrastructure
- Market orientation
- Table: Asia, FDI Inflows
- table: BMI trade ratings
- operational risk
Chapter 5: Key Sector63
- Power
- table: South Korea Power - historic Data & Forecasts
- Petrochemicals
- table: South Korea Sector Forecasts70