On the Road to Economic Recovery

The Korean economy is expected to grow 4% or 5% in 2010, according to recent forecasts by domestic and foreign economic organizations and research centers at major Korean business groups such as Samsung, LG and Hyundai. Although all agree that the Korean economy will recover quickly, their predictions differ regarding by how much.

The Korea Development Institute, a government-run think-tank predicted that Corporate Korea will record a growth rate of 5.5%. On the other hand, the Korean Government expects a figure of around 5%, a relatively positive prediction. However, other organizations were more prudent in their predictions. Most expect the Korean economy to grow by 4%, adding that it will still face some uncertainties.

KDI predicts that facility investment will enjoy a growth rate of 17.1% thanks to a recovery in the world economy and stabilization of foreign exchange rates. Investment in construction is projected to grow by 3.1%, with continued investment in the social overhead capital (SOC) sector and a recovery in investment in the private construction sector. As for exports, the KDI predicted that Korea’s exports will grow about 8% thanks to a recovery in the global economy. Furthermore, KDI forecast that Korea’s imports will grow about 11%, adding that with a full-scale economic recovery Korea’s current account surplus is expected to stand at approximately US$16.2 billion. The unemployment rate is expected to stand at 3.4% thanks to economic recover, while consumer prices are predicted to grow about 2.7%.

In addition, the Korean government predicted that the Korean economy will grow about 5% in 2010. Meanwhile, the Ministry of Finance and Economy (MOFE) forecast that private consumption will increase 4.2% following a rise in household income. Facility investment will stand at about 11%, with a recovery in demand, stability of the financial market, strong corporate profitability and base effects.

The MOFE also predicted that investment in construction will increase 3.2%, with a small rise in investment in the public sector and a gradual recovery in private house construction.

The MOFE projected that Korea’s current account will stand at about US$15 billion. It was forecast that the product balance of Korea will drop to US$35 billion in 2010 from US$55 billion in 2009. The non-product balance is expected to record US$20 billion in losses due to an increase in the balance in the travel account. The number of employed people is projected to increase by about 200,000 thanks to new jobs in the private sector and government policies. The hiring rate will be about 58.5%, while the unemployment rate will stand at around 3.5%. Consumer prices are expected to rise roughly 3% despite negative factors such as a rise in international material prices.

On the other hand, Bank of Korea (BOK) forecast that the economic growth rate will stand at 4.6% in 2010. The central bank of Korea also predicted that the number of employed people will jump by 170,000 and that the unemployment rate will fall to 3.5% from 2009’s 3.7%. The growth rate of facility investment is expected to rise to 11.4% in 2010 from -9.6% last year thanks to an increase in global demand, improvements in corporate profitability and base effects. Construction investment is expected to drop to 2.5% from last year’s 3.1%. BOK also predicted that private consumption will grow 3.6% thanks to stronger consumer confidence and an increase in income. Meanwhile, Korea’s exports are expected to grow 9.3% in 2010 due to an increase in global trade, while Korea’s current account surplus is expected to stand at about US$17 billion in 2010, a drop from US$43 billion in 2009. Consumer prices are also expected to rise about 2.8% in 2010.

However, major private economic research institutes in Korea offered more conservative predictions. The Samsung Economic Research Institute forecast that the Korean economy will grow 4.3% in 2010. Adding that the Korean economy is expected to grow 6.0% in the first half from a year ago and 2.9% in the latter half, the won/dollar exchange rate will drop to about 1,100 won per dollar from last year’s 1276 won per dollar. The institute also expects Korea’s exports and imports to rise to 14.5% and 21.8%, respectively in 2010.

The institute also went on to predict that the balance of payments will drop to US$20.6 billion in 2010 from US$38.8 billion in 2009, and that the current account surplus will fall to US$18.7 billion in 2010 from US$39.7 billion in 2009. Korea’s consumption and investment are also expected to recover in 2010. Facility investment is expected to rise 8.2% while private consumption will increase to 3.1%, the institute said. Consumer prices are expected to rise 2.9%, while the unemployment rate will fall to 3.4% in 2010 from last year’s 3.7%.

Meanwhile, the LG Economic Research Institute forecast that the Korean economy will grow 4.6% in 2010, adding that it will grow 5.8%in the first half of 2010 and 3.5% in the second half. It is also forecasted that private consumption and facility investment will grow 3.9% and 9.7%, respectively. In addition, the current account surplus of Korea is expected to drop to US$17.8 billion from US$43.2 billion in 2009 due to a 17.1% increase in exports and a 24.8% increase in imports. The research institute of the LG Group also predicted that the won/dollar exchange rate will fall to about 1,100 won per dollar. However, the institure also predicted that consumer prices will grow 2.7%, with the real GDP staying below the potential GDP. It also predicted that unemployment will drop 0.1% to 3.5% in 2010.

The Hyundai Economic Research Institute predicted that the Korea economy will grow 4.5% in 2010, and that private consumption and facility investment will increase to 3.3% and 9.5%, respectively. Exports are likely to grow 12.9% following a faster than expected recovery. However, the growth rate of imports will be higher than that of exports. As a result, the current account surplus will fall to US$18 billion from US$42.1 billion in 2009. The institute also expects the won/dollar exchange rate to stay at around 1,100 won per dollar.

On the other hand, global economic organizations predicted that Korea will enjoy economic growth of about 4% in 2010, with the International Monetary Fund (IMF) forecasting the Korean economy to grow 4.5%. However, although risk factors are stable, certain uncertainties still remain, the IMF added.

At the same time, the Organization for Economic Cooperation and Development (OECD) expects the Korean economy to grow 4.4% in 2010 and 4.2% in 2011. It also predicted that Korea will enjoy an economic growth rate of 4.5% from 2011 to 2017. In the meantime, the World Bank predicted that the Korean economy will grow 3.7% in 2010, stating that most countries in East Asia have entered a recovery phase and that Korea is the fastest among them.