The Korean economy in 2004 is projected to achieve 5.0% growth, higher than the 3.1% recorded in 2003, with a slight recovery in domestic demand due to a technical rebound from the sluggishness of last year and strong exports leading the growth.

Owing to a significant increase in exports, meanwhile, the surplus in the current account is expected to reach about US$14 billion, exceeding the US$12.3 billion of last year, while consumer prices will likely climb 3.5% in the aftermath of imported raw material price hikes, including international oil prices.

However, a confluence of downside risk factors could substantially lower our growth projection to as low as around 4% with inflation flareup in the worst case. To list those in the order of their potential impact: high oil prices; a sharp deceleration of the Chinese economy and repercussion of possible revaluation of the Chinese renminbi.

Also, concerns remain about a shift in government policy on wide ranging issues in the aftermath of the ascendency of the new ruling party with many left-of-the-center members, as well as the leftist Democratic Labor Party. Any discrete movements of the policy orientation of the government is likely to dampen business sentiments further and extend the current sluggish trend in investment and employment.