Economic Growth for 2010 Projected at 4.2%

The Korean economy, after recording a rapid recovery in the second half of 2009, is expected to slow down somewhat and mark an annual growth rate of 4.2% in 2010. As the government begins to implement exit strategies, ranging from interest rate rises to expiration of tax benefits, economic growth is expected to lose some momentum. In addition, lower world economic growth and a stronger Korean won will hamper a robust recovery in the export sector, which was a driving engine of economic recovery in 2009.

Current Account to Post US$15 Bil. Surplus and Consumer Prices to Rise 2.9% in 2010

The commodity account surplus is expected to contract sharply due to import growth outpacing export growth in 2010. The service account deficit is also expected to grow again due to foreign exchange rate appreciation and weakness in service sector competitiveness. As a result, the current account surplus in 2010 is expected to be about US$15 billion, significantly lower than the US$41.5 billion in 2009.

Rising prices of raw material imports will threaten price stability in 2010. However, due to weak domestic demand and a stronger Korean won, the consumer price level is expected to post a modest increase of less 3% in 2010.

Caution Required for Interest Rate Increase

It is important to emphasize that the policy interest rate should be raised in step with other countries' monetary policies so as to prevent excessively rapid capital inflows and faster than desired appreciation of the Korean won.