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KERI Bulletin

KERI Economic Bulletin (Oct. 2014 No.77)

14. 10. 21.

한국경제연구원


Growing uncertainty limits Korea’s 2014 annual GDP growth at 3.5%; growth gradually improves to 3.7% in 2015


The growth projection for 2014 has been marked to annual average of 3.5%, with its trajectory of 3.7% growth in 1H and 3.2% in 2H. The projection reflects both the uncertain external and domestic environments, and a less-then-expected recovery in exports on won surge, which offset positive factors such as the government’s economic revitalization policies. Economic growth is expected to rebound for 2015, with growth projection at 3.7%, an increase by 0.2%p, reflecting external factors of positive global growth projections (IMF projection from 3.4% in 2014 to 4.0% in 2015) as well as internal factors of the expansionary macroeconomic policies of the government. However, the US Fed’s embark of exit strategy, the slowdown of Chinese economy, continuing of weakening status of Japanese yen, domestic household debt burden, and uncertainty upon property market climate are factors that oppress the economy hard to grow over 4% in 2015.


Consumer price increases from 1.5% in 2014 to 2.3% in 2015; current account surplus contracts from US$82.8 billion to US$80.2 billion in 2015


Consumer prices for 2015 are expected to be higher than those of 2014 as downward pressure is mitigated by the impending public utility price hikes and an upward economic recovery trend. However, the speed at which it is ascending slows to a lower 2% range, due to the fall in the won-dollar exchange rate and the stabilizing trend of the international raw material prices including oil price. Korea’s current account projection for 2014 is a surplus of US$82.8 billion, the largest surplus ever. However, the surplus is expected to narrow a little to US$80.2 billion in 2015 due to growing imports and deficits in the services account.


USD/KRW falls from 1,040 won yearly for 2014 to 1,045 won for 2015


A dip in the current account surplus, the biggest won-appreciating factor, together with the chance of interest rate hike in the US, a dollar-appreciating factor, will mitigate the ascending pressure of the won, which gradually pulls down the won-dollar exchange rates to an average of 1,045 won in 2015.


Amid the prolonged weak-yen trend, if the yen-dollar rate hits 116 yen mark, the Korean economy growth will fall by 0.27%p


Since 2013 2H, the Japanese yen has depreciated 39.9% against the US dollar, and there are signs that the weak-yen trend is here to stay. Background for the weak-yen trend is as follows: widening gap of the interest rates between US and Japan, led by the US economic rebound; the strong dollar-weak euro trend due to the ECB’s monetary easing policy; and the need for verification of additional quantitative easing following the consumption tax hike in Japan. In particular, if USD/JPY rate hits the 116 yen average in 2015, Korea’s goods exports (nominal) is forecast to fall by 1.14%p and imports fall by 0.15%p, while private consumption is expected to decrease by 0.11%p, pulling the overall Korean economic growth by 0.27%p.


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