Welcome to the 2007 SERI Outlook, I'm Young-Jae Jeon from the Macroeconomy Department. Today, we'll examine Korea's macro-economic and management environment.
Korea's economy has gone through substantial challenges in 10 year intervals. First, Korea transitioned to become a democratic country in 1987. Next, Korea was substantially affected by the Asian financial crisis in 1997. Therefore, I hold both expectations and apprehension over what will happen in 2007. Today, as the first outlook in the 2007 series, we'll have a glimpse at Korea's economic environment.
First, let's look back at what happened in 2006. 2006 began amidst heightened expectations for the Korean economy. In particular, many expected that exports and domestic demand would balance out. However, the Korean economy's overall economic performance was on the whole disappointing.
Of course, the Korean economy showed strong growth registering 5% year-on-year GDP despite numerous negative factors such as high oil prices, a strong Won and the North Korean nuclear test. Exports, in particular, were robust with continued double-digit growth for the fourth straight year. Annual export volume in 2006 broke $300 billion for the first time in history.
In spite of strong exports, however, robust domestic demand failed to materialize. Consumption was dragged down by sluggish job creation, well below 5-year historical averages, and stagnant real wages.
All things considered, the Korean economy in 2006 was severely imbalanced due to tepid domestic demand and strong exports. As a result, the economy couldn't maintain the first-half economic momentum into the second half of 2006.
Now, let's take a look at 2007.
Considering that conditions may be more volatile in 2007, the Korean economy is forecast to achieve lower growth. SERI predicts that the Korean economy will grow 4.3% in 2007 on the back of stagnating growth in domestic demand and a slowdown in exports to single-digit growth due to a stronger won. Another key factor will be the global economy's performance.
Let's look at the international and domestic factors that may affect this forecast. The world economy is likely to slow down in 2007 from previously robust growth rates. The primary reason is a possible economic slowdown in the US due to the sluggish housing market. With these conditions in mind, SERI forecasts the global economy will expand 3.3% in 2007, down from 3.7% growth in 2006.
Though a'hard landing' scenario is unlikely for the US economy, a continued downturn in the housing sector could cause a recession thereby affecting global growth. Also, the dollar is expected to remain weak in 2007 due to deteriorating structural supports such as the shrinking interest gap differential in key markets and a burgeoning current account deficit. One fortunate factor is the stabilization of oil prices. Along with the slowdown of the world economy, oil demand is forecast to decline, with average oil prices stabilizing at a band from $50 - $59.
Let's turn to domestic issues. The most important variables for the Korean economy could be the evolution of the North Korean nuclear challenge and the upcoming presidential election. If the security risk posed by North Korea grows, it could dampen domestic consumption and overall investment sentiment.
In the past, elections did not exert much influence on the Korean economy. However, if the election leads to increased instability and government is unable to respond, it could harm economic stability.
Meanwhile, exports are forecast to recover during the latter part of 2007. Accordingly, the Korean economy is expected to have a weak first half in 2007, followed by stronger growth in the second half. Overall, the Korean economy has a potential growth rate of 4.7% for 2007. If the Korean economy achieves 4.3% growth in 2007 as forecasted, it means Korea will fall short of its potential growth rate for the fourth time since 2003, with the exception of 2006. In other words, the Korean economy has room for further growth but is not reaching its current potential due to weak domestic demand and an increasing disconnect between rising exports and consumption.
The main challenges facing the Korean economy in 2007 will be the expansion of domestic demand and more balanced growth between domestic and foreign demand.
Next is the current account. Korea's current account is forecast to post a deficit of $4.6 billion in 2007 due to sluggish exports and growing service account deficits. Accordingly, Korea is expected to run a current account deficit for the first time since 1997.
Next year's money market rate is likely to remain low, similar to 2006, because new capital demand will lag during decreased economic activity. By sector, IT-based industries will likely grow on the back of new services and products, in addition to replacement demand for computers. In contrast, old-line industries such as automobiles and shipbuilding are expected to register slower growth than 2006 due to a slowing domestic economy and exports.
2007 holds many challenges for the Korean economy. In addition to a more complex international environment, markets may be roiled by increased instability on the Korean Peninsula. The Korean government and firms must focus on restoring the virtuous economic circle that has historically propelled growth. Thank you. I'm Young-Jae Jeon
Copyright 2006 Samsung Economic Research Institute. All rights reserved.
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첫댓글 읽다 보니 deficit 단어만 자꾸 눈에 들어오네요. 여전히 걱정되는 우리나라 경제.