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KERI Bulletin

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KERI Bulletin

KERI Economic Bulletin (Nov. 2006 No.46)

06. 11. 21.


Next year, it is projected to experience some slowdown in economic growth that is caused by worsening foreign environment including economic slowdowns in major countries and global interest rate hikes, and also by rising domestic uncertainties from the presidential election and consequent political turmoil. The recent nuclear test of North Korea will be additional factor in further slowing the nation's economic growth. The degree of negative impacts from the nuclear test will depend on how the incidence further develops in the near future.

If economic sanctions on North Korea are imposed internationally and consequently disharmony between the South Korean government and other nations regarding the Mt. Keumgang tour project, Kaesung Industrial Complex, PSI engagement, etc. and domestic friction occur, the rate of economic growth next year is expected to be less than 4%, affected by contractions in household consumption and corporate investment sentiment, greater price fluctuations, decline in external confidence, reduction in capital inflows and others.

If North Korea reacts strongly against the economic sanctions and the engagement of PSI with another nuclear test and in turn stronger economic sanctions are imposed and even military tensions are further developed, the growth rate is projected to fall below 2% affected by capital outflows following a sharp fall in national credit rating and limited economic activities in line with the spread of social uncertainty sentiment.

In such case, the government will need to implement a crisis management system for the whole economy, considering it a national crisis situation. It should consider preparing an additional supplementary budget and endeavor to secure a more stable currency value and finance system and should also undertake a temporary suspension of some or all foreign exchange transactions.

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