South Korea

Current Economic Outlook

The vulnerability of the South Korean economy rose in late 2008 due to sharp export contraction and massive capital outflows. Aggressive stimulus measures and increased manufacturing activity have helped the economy avoid a technical recession. However, RGE forecasts South Korea will contract 1.5% in 2009 and grow 3.3% in 2010. A sluggish export recovery and waning stimulus impact will lead to a U‐shaped recovery. In case of a “double‐dip” U.S. recession or a revival of global risk aversion, South Korea will take another hit via trade and external debt channels. As consumers in the advanced economies deleverage over the next few years and domestic demand remains sluggish, South Korea will not go back to the 4%‐5% plus growth rates of recent years at least until 2011. Conditions in the external sector have improved since Q2 2009 backed by a stable currency (the Korean won), rising current account surplus and surging capital inflows. Net external liability has gone down and the share of short‐term debt in total external debt has declined.

Read the latest RGE Global Economic Update.