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KERI Bulletin

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KERI Bulletin

KERI Economic Bulletin (Aug. 2012 No.69)

12. 9. 4.


Korea's 2012 Growth Downwardly Adjusted to 2.6% and 2013 Growth Projected at 3.3%

A downward adjustment of the national economic growth for 2012 was made to 2.6%, 0.6 percentage point lower than 3.2% announced in May this year. This is because amid worsening export environment caused by a prolonged recession in the European economy, delay in the U.S. economic recovery, decline in the Chinese economy, etc., improvement in the domestic demand environment also is difficult due to employment slowdown and limitations of policy space.

Affected by the fall in the price of assets, household debt burden, employment recovery slowdown, etc., private consumption growth is likely to reduce to 1.4% from 2.2% and facility investment growth is expected to slow significantly to 1.4% from 6.0% as well in consideration of a declining trend in the export growth and shrinkage of corporate investment sentiment and others. Construction investment growth was revised to 0.3% from the previous 2.0% after taking into account the continuation of a stagnation in housing business conditions.

Consumer Price Forecast at 2.6%, Current Account Balance at US$30.3 Billion, Won-U.S. Dollar Ex-Rate at 1,140 Won

The consumer price growth for 2012 is projected at 2.6%, a 0.5 percentage point lowered figure than the previous 3.1%. Influenced by the slowdown of imports outstripping that of exports, improvement in the service balance, etc., current account balance is expected to expand to US$30.3 billion from US$15.9 billion forecasted earlier. The won-U.S. dollar exchange rate is predicted to hover around 1,140 won without direction according to alleviation or recurrence of the European economic crisis.

Growth for 2013 Projected at 3.3% - Below Potential Growth Rate Despite Slight Improvement

The growth is expected to improve slightly in 2013 to 3.3%, which can not reach the level of potential growth rate. Consumer price growth is projected at 2.6%, similar to this year. The current account surplus scale in 2013 is expected to reduce to US$24.6 billion and won-U.S. dollar exchange rate to appreciate mildly and post an annual average of 1,106 won.

Need for Soft Landing of Household Debt & Blocking of Sharp Drop in Real Estate Prices

When considering the moves of the related indicators, such as assets price, currency multiplier and overdue loan payment rate, it appears that a possibility of deflation is not high but is still on the rise. As policy tasks required to ease deflation possibility, reinforcement of policy responses for a soft landing of household debts and pursuit of activation of transactions in the real estate market through adverse mortgage and total equity investment ceiling system are needed.

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