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KERI Bulletin

KERI Economic Bulletin (May 2012 No.68)

12. 5. 30.

한국경제연구원


Korea's 2012 GDP Growth Projected at 2.9% in 1st Half and 3.4% in 2nd Half


The national economy for 2012 is expected to achieve 3.4% growth in the second half after expanding 2.9% in the first half, reflecting a phenomenon of 'low in the first half as well as low in the second half.' Due to the re-emergence of the European financial crisis, the unstable recovery of the U.S. economy and China's economic slowdown, expectations for a global economic recovery have been weakening again recently. Therefore, Korea's economic growth is not likely to find it easy to improve. Affected by the easing of international oil prices, won-U.S. dollar exchange rate appreciation, base effects, etc., consumer price growth in the first half is projected to fall slightly.

Current Account Balance: US$5.3 Bil. in 1st Half and US$10.6 Bil. in 2nd Half


Exports are projected at single-digit growth due to the slow pace of the global economic recovery, competition with Japan and exchange rate appreciation. Owing to expansion of domestic demand in newly emerging countries and the Korea-U.S. FTA, however, exports are expected to improve more in the second half than in the first half. Accordingly, the current account balance is projected to increase to US$10.6 billion in the second half from US$5.3 billion in the first half. Influenced by the preference for safe assets, meanwhile, the won-U.S. dollar exchange rate will maintain at a high level in the first half, but is expected to decline to the 1,099 won level in the second half, caused by a weakening dollar trend and expansion of the surplus in the current account balance.


Need to Respond to Weakening of Japanese Yen


When considering a decline in the exchange rate pass-through (ERPT) on export prices in the wake of won-yen exchange rate fluctuations and a high export competition level between Korea and Japan, an analysis found that the 'weak yen' phenomenon expected in the future would have a significant impact on Korea's exports. As a result of simulations utilizing a macroeconomic model, if the yen-U.S. dollar exchange rate depreciates 10%, Korea's exports and economic growth are likely to fall about 3.2% and 0.35 percentage point, respectively. Therefore, Korea should work to overcome a 'weak yen' through enhancement of non-price competitiveness, including quality improvement, in the long term. In the short term, however, Korea also needs strategies to minimize adverse side effects of the weak yen by making the best use of the Korean economy's comparative advantages, such as Korea-U.S. and Korea-EU FTAs.

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