Republic of Korea
Bangkok (UN Information Services) – Economic growth in the Republic of Korea in 2008 is forecast to be little changed at 4.9 per cent as a slowdown in the United States is offset by expanded business opportunities in China, according to the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
In its Economic and Social Survey of Asia and the Pacific, ESCAP said consumer confidence remained buoyant due to rising household incomes and the unemployment rate being at its lowest since the Asian financial crisis in 1997.
ESCAP acknowledged that a slowdown in the United States economy would hurt exports, but a strong economy in China and a free trade agreement with the US coming into effect in 2008 would benefit the country’s exporters. “Private consumption will remain strong, having recovered from the bursting of the household credit bubble (of 2004),” ESCAP said.
But the major downside risk lay with a severe downturn in the US economy. “In a worst–case scenario – if the United States economy goes into a recession – the Republic of Korea, Taiwan Province of China, and Singapore would feel the greatest effects, due to their strong export focus,” ESCAP said.
A 2001 slowdown in the United States economy led to a sharp contraction in US import demand for consumer durables and their associated inputs, as well as machinery and equipment. ESCAP said that electrical machinery, road vehicles and telecommunications equipment constitute almost 40 per cent of the Republic of Korea’s exports.
A United States slowdown may also lead to financial losses from investments in the US, further reducing income, leading to a contraction of consumption, as well as possible reversals affecting equity markets.
ESCAP said that in 2008 inflation is forecast to pickup marginally to 3.1 per cent after inflation for 2007 remained moderate “and within the target range of 2.5 to three per cent.” Price rises were mitigated by the continued appreciation of the Korean won. The main concerns on the inflationary outlook lay with higher global energy prices and strong domestic demand.
Exports buoyed by China’s growth and finance’s growing global role
ESCAP said exports from the Republic of Korea remained strong, buoyed by China’s economic growth which offset both the appreciation of the won, up by 7.3 per cent against the dollar in 2007, and weak demand from the United States.
ESCAP noted that services exports were now a “major success for the Republic of Korea,” which was among the top five exporters of transport services in the ESCAP region together with Hong Kong, China; China; Singapore and the Russian Federation. This group of exporters accounted for 16 per cent of the world total or US$99 billion. Exports of other commercial services were also higher, growing at an annual average of 13 per cent for the developing ESCAP region between 2000 and 2006.
Strong domestic demand and high oil prices led to high merchandise imports. Outbound tourism and royalty payments on overseas patents also led a deficit in the services account balance. The outflow of profits from foreign direct investment was offset by increasing purchases by domestic residents in overseas assets.
A key feature has been the increasing role of Korean and other Asia-Pacific investors in supporting developed countries through the recent turmoil in the financial markets. “Sovereign wealth funds and State investment institutions from the region have bolstered weakened banking sectors in the United States and Europe,” ESCAP said. The purchases have included equity stakes by the Korea Investment Corporation.
Further information on the Survey can be found at:
For more information, please contact:
Hak-Fan Lau, UN Information Services, ESCAP
Tel.: +66-2-288-1866, Mob.: +66-84700-1147
Ari Gaitanis, UN Information Services, ESCAP
Tel.: +66-2-288-1862, Fax: +66-2-288-1052