Korean economy will improve in the second half of this year
Korean economy will improve in the second half of this year
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  • 승인 2014.09.25 18:03
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Sewol Ferry Case adversely affects the national economy

The increase rate of the Gross Domestic Product (GDP) of the Republic of Korea this year will be 3.8%, which is .2% lower than had been forecast last April when it was estimated at 4.0%. This was recently disclosed by the Bank of Korea (BOK).
The main cause of this is the Sewol Ferry Case which retarded the smooth growth of the economy in the second quarter of this year. However, the economy is expected to start picking up in the third quarter of this year.
The contributing factor to the economic growth by export is expected to be slightly larger than domestic consumption.
Indicators on employment, consumer price and the balance of accounts for this year are as follows:

An increase of 500,000 workers was predicted last April but the number is expected to decrease to 480,000. Cause of the increase derives from the retention of the elderly workers in the labor market which is expected to continue into the second half of the year as well as from the government policy to increase the number of jobs for the young people, women and senior citizens who can work.

Consumer price:
The increase rate of the consumer price for this year, which the BOK had estimated at 2.1% last April, is expected to be a bit lower with 1.9% compared with the 2.1% forecast in April.
Due to the little-affected demand for consumption and increase in the price of agricultural produce, consumer price will continue to rise and into the second half of the year. However, on the yearly average the increase rate of the consumer price is expected remain lower than 2%.

Current account balance:
The current account surpluses, which were forecast at US$68 billion in April, are expected to increase to US$84 billion. The rate of current account surplus compared to GDP, which stands at 5.7 to 5.8% this year, and is expected to decrease to 4.4% to 4.5%.

Fiscal outlays (government expenditures):
The increase rate of the government expenditures this year is expected to more than double that of last year--scoring 5.4% compared with 2.5% last year.
The government has decided to spend 57% of the budget in the first half of the year, which is expected to decrease the scale of expenditure in the second half.

However, uncertainties of government revenues could adversely affect the smooth execution of the budget. In fact, the tax revenues in the first quarter of this year remained at 34.1% which was lower compared with 34.8% recorded in the corresponding period of last year.
The government expenditure in 2015 is expected to increase by approximately 3% in accordance with the National Budget Operation Plan (encompassing 2013 to 1017).

Housing:The increase rate of the prices of houses is expected to remain the same between the first half of the year and the second half.
In the Seoul Metropolitan City and the Capital Zone (surrounding suburbs), uncertainties involving the lifting of restrictions on real estate dealings will more or less adversely affect the rise of the real estate prices. However, outside of the Capital Zone modest increases in the real estate prices are anticipated to continue.
However, prices of Jeonse (a deposit-type leasing where no rent is paid) among the small-medium size housing will not rise in the second half as much as it did in the first half of the year as the supply of new housing units increased.
At the same time housing price instability is expected in areas where reconstruction of old apartment buildings takes place and where government and other public offices move in.

Economic growthConsumption at the private sector: Consumption in the private sector is expected to make an adequate increase in contrast with the slow market in the first half. This is due to the improvement of income on the part of citizens and recovery of the people? consumption sentiment. Another reason is the substantial increase in employment and the resultant improvement in the family income although the rate of wage increases was somewhat slow.

The consumer sentiment index (CIS) was 110 in April this year, which decreased to 108 in May and then rebounded back to 110 in June), which may be construed as a sign of gradual recovery of the consumer sentiment that had been adversely affected by the Sewol Ferry Case that broke out on April 16 this year when the ferry ship sank off the cost of Jindo Island on the southwestern tip of the country.
However, the current figure is still very much lower compared with the 91 which had prevailed prior to the sinking of the Sewol Ferry.
Other causes of increased consumption include the low prices of imported goods due to the fall of the value of the US dollars to the Korean Won, payment of basic pensions in July, the Incheon Asian Games in September and October and resumption of school excursions after July.

However, there also are unfavorable factors that could adversely affect the consumer psychology. They include the accumulation of household debts and pressure for payment of bank interests and principal. The increase rate of the household debts outstrips that of wage increases.
Facility investment: The facility investments has made an adequate growth thanks to the improvement of the global economy and this trend is expected to continue.
Orders for machinery, which are a leading indicator, continues to improve and steady growth of exports is expected to increase the facility investment.
However, profitability at the manufacturing industries is at a standstill and the investment sentiment of the business people is not very strong after May. These factors could unfavorably influence the growth rate of investment.
Business area-wise, investments are increasing on a stable basis in the IT (information technology) sector and such increases are also anticipated in the non-IT areas such as automobile and the public sector.
Investment in the IT sector is anticipated to increase due to the expansion of semiconductor and display production facilities.
In the non-IT sectors, investments are predicted to increase in the automobile industry due to the increased demand in both domestic and overseas markets and such investment increase are also expected in the power generation, railroad and other areas of the public sector.

Investment in intellectual property:A high rate of investment increases is anticipated in the production of intellectual property in the second half of this year.
The R&D (research and development) investments are anticipated to make a seventh-percent increase thanks to the support of the government.
Such investments are expected to continuously increase in the information service area thanks to the growth of the industry.
Investment in construction industry:
The increase rate of investment in the construction sector is expected to be slow in the second half of this year, especially in the housing construction area. This is because there has been a decrease in the receipt of orders for housing construction and the decrease in the number of sale of apartment housing.

The slow order receipts for housing construction in the 2012-2013 period have also exerted an unfavorable influence on the increase rate of investment in housing construction.
Therefore, sale of apartment in the Capital Zone is expected to be slow in the second half of this year.
However, thanks to the improvement in the housing market and government permission granted for reconstruction of existing apartment buildings for increased stories, there could be a slow but steady increase in the housing construction.
The non-housing construction, however, is expected to continue to have a good time thanks to the construction of commercial business-purpose buildings and factories.
In fact, construction of hotel and other commercial business-purpose buildings is on the increase thanks to the government easing of restrictions.

Civil engineering and infrastructure:
There has been an increase in the placement of orders from the public sector for the construction of infrastructure such as roads and railroads--in contrast with the slow business in the first half of the year.
Expenditure of the public sector for the infrastructure construction is expected to increase compared with the preceding year.
Export of commercial goods:
The increase rate of export of commercial goods is expected to be larger in the second half of the year. This is because export conditions are continuously improving thanks to the expansion of the growth of world trade. The export businesses, too, show a favorable signs on the outlook of export in the second half of the year.
Such an increase in export is expected both at the IT and non-IT areas. It is due to the improvement of international competitiveness in non-price areas and increased use of intermediate import goods, which gave Korean exporters an increased measure of freedom from the ill effects of the fluctuation of exchange rates between the Korean Won and the US dollars, from which they had suffered in the past.

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