Low inflation and the prospects for prolonged sluggish growth at home and abroad prompted the central bank in May to cut the policy rate by 25 basis points to 2.5%. The authorities last cut the policy rate in October and the government has since stepped up fiscal stimulus to support growth. After slowing to 2% in 2012 from 3% in 2011, real GDP rose at a seasonally-adjusted annual rate of 3.6% in the first quarter of 2013. This year’s rebound was generated mainly by a jump in government consumption, reflecting the budget for 2013 that calls for 60% of total expenditures for the year to be disbursed in the first half. The outlook for growth to remain subdued prompted the new government of President Park to propose a W17.3 trillion ($15.3 billion) supplemental budget. In addition to tepid growth in consumption, renewed tensions on the Korean Peninsula and the recent depreciation in the yen adds another negative aspect to the poor growth prospects.
- The 12-month increase in consumer prices eased from 1.5% in January to 1.4% in February and 1.3% in March, below the central bank's new target range 2.5-3.5% for 2013-15.
- The value of merchandise exports was 2% greater in the first quarter of 2013 than a year earlier, following growth of 0.7% in the fourth quarter of 2012 and contractions of 2.8% in the third quarter and 2.5% in the second quarter.
- Official foreign exchange reserves were $324 billion in April, up slightly from $323 billion at the end of 2012 after the purchase of $1 billion of gold, which raised official gold holdings to around $5 billion at current market prices.
Korea Publications
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The Reluctant Rate Cut
May 23, 2013Slow growth, low inflation and weak external demand finally prompted the central bank to cut the policy rate after a seven-month hiatus. The latest monetary action is likely to be too little and too late to revive the economy.
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Foreigners Rush to Bonds
April 11, 2013Last year’s ratings upgrades and favorable returns have attracted large foreign investments in domestic bonds. Fiscal sustainability and low public debt have also generated interest, while investors have taken rising tensions on the Korean Peninsula in stride.
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Difficult Start for the New President
March 12, 2013The honeymoon most newly-elected candidates enjoy on first taking office has eluded President Park Geun-hye. Financial markets are taking the latest developments in stride, but the current impasse in the National Assembly and renewed tensions on the Korean Peninsula threaten to hamper the government’s plan to revive the moribund economy.
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What Happened to Equities?
February 04, 2013The domestic stock market is distinguished from the rest of the region and most of the world by its poor performance so far this year. The fundamentals reaffirm investor apprehension about the near-term outlook and lingering doubts about when the economy will regain momentum.
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The Next President
December 14, 2012The presidential election that will be held on December 19 will set the course of economic policy for the next five years. The centerpiece of the campaign is “economic democratization,” which calls for redressing the wealth gap and controlling the market power and influence of the large family-owned companies.
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Policy Favors Stability
August 23, 2012With slow global growth hampering exports and high household debt discouraging consumption, real GDP growth is set fall to 1.5% this year from 3.6% in 2011. The government’s reluctance to stimulate domestic demand over the near term should bolster economic and financial stability over the medium term.
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Volatile Capital Flows
July 23, 2012Large swings in foreign holdings of domestic bonds highlight the growing importance of external factors in driving cross-border capital flows.
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