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South Korea North Korea at a Glance: 2001-02

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South Korea North Korea at a Glance: 2001-02 COUNTRY REPORT South Korea North Korea At a glance: 2001-02 OVERVIEW The leader of the opposition Grand National Party (GNP), Lee Hoi-chang, still looks well placed to win the end-2002 presidential election. The constitution may be amended to allow presidents to serve more than one term. The harder line taken by the new Bush administration towards North Korea may give the North an excuse to slow rapprochement with the South. Real GDP growth in South Korea will slow from 8.8% in 2000 to 3.7% in 2001, before accelerating slightly to 4.7% in 2002. Net trade will make a neutral contribution to GDP growth in 2001 and a negative contribution in 2002. Consumer price inflation will average 3.6% in 2001 and 1.7% in 2002. Lower world oil prices, the won‘s appreciation against the US dollar and the deflationary impact of economic reforms will all moderate inflationary pressures. Key changes from last month Political outlook • The tiny Democratic People‘s Party joined the ruling coalition in March, giving the government a slim majority in the National Assembly (parliament). Economic policy outlook • The Bank of Korea (the central bank) maintained its target interest rate, the overnight call rate, at 5% at its April monetary policy meeting, citing concerns over rising inflationary pressures. Economic forecast • The EIU has revised upwards its forecast for consumer price inflation in 2001 to reflect faster than expected inflation in the first quarter of the year. But we continue to believe that inflation will moderate over the forecast period. May 2001 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1007 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7830 1023 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2001 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the EIU does not accept responsibility for any loss arising from reliance on it. ISSN 1350-6900 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK 1 Contents 3 Summary 3 South Korea 4 North Korea 5 Inter-Korean relations South Korea 7 Political structure 8 Economic structure 8 Annual indicators 9 Quarterly indicators 10 Outlook for 2001-02 10 Political outlook 11 Economic policy outlook 13 Economic forecast 17 The political scene 20 Economic policy 22 The domestic economy 22 Output and demand 25 Employment, wages and prices 26 Financial indicators 28 Sectoral trends 31 Foreign trade and payments North Korea 34 Political structure 35 Economic structure 35 Annual indicators 36 Outlook for 2001-02 36 Political outlook 37 Economic policy outlook 38 The political scene 38 The domestic economy EIU Country Report May 2001 © The Economist Intelligence Unit Limited 2001 2 List of tables 13 South Korea: forecast summary 14 South Korea: international assumptions summary 15 South Korea: gross domestic product by expenditure 16 South Korea: current-account balance 23 South Korea: expenditure on gross domestic product, 2000 23 South Korea: gross domestic product by industry, 2000 24 South Korea: seasonally adjusted manufacturing production 24 South Korea: construction indicators 25 South Korea: employment 26 South Korea: wages in manufacturing industry 26 South Korea: price indicators 27 South Korea: money supply trends 28 South Korea: financial market indicators 32 South Korea: exports and imports of selected commodities 33 South Korea: current- and capital-account balances 33 South Korea: external liabilities List of figures 17 South Korea: gross domestic product 17 South Korea: won real exchange rates 27 South Korea: overnight call rate 29 South Korea: exchange rate 31 South Korea: trade indices in volume and value terms EIU Country Report May 2001 © The Economist Intelligence Unit Limited 2001 3 Summary May 2001 Inter-Korean relations The harder line of the new US administration gives North Korea what may be a welcome excuse to slow the pace of rapprochement with the South. Kim Jong-il’s visit to the South may be delayed. A third round of family reunions was held in February. Several South Korean firms have announced joint ventures with the North in its information-technology sector. South Korea Outlook for 2001-02 The leader of the opposition Grand National Party (GNP), Lee Hoi-chang, will win the end-2002 presidential election. The constitution may be amended to allow presidents to serve more than one term. Real GDP growth will slow from 8.8% in 2000 to just 3.7% in 2001, before accelerating to a relatively modest 4.7% in 2002. The contribution to GDP growth of net trade will be neutral in 2001 and negative in 2002. Changes in stockbuilding will make positive contributions to GDP growth in both years. The won will average W1,275:US$1 in 2001 and W1,213:US$1 in 2002. The won’s broad nominal appreciation during the period will be driven partly by continuing favourable merchandise trade flows and net capital inflows. Consumer price inflation will average 3.6% in 2001 and 1.7% in 2002. Lower world oil prices, the won’s steady appreciation against the US dollar and the deflationary impact of continued deregulation will all mute inflationary pressures. The political scene The tiny Democratic People’s Party joined the ruling coalition in March. The coalition now has a slim majority in parliament. The cabinet was reshuffled in March. Relations with the US and Japan have deteriorated, and Russia’s president, Vladimir Putin, wrong-footed Kim Dae-jung during his first visit to Seoul. Economic policy Concerns over the recent weakening of the won and rising inflationary pressures suggest that the Bank of Korea (BOK, the central bank) will not lower interest rates further for the time being. In early April the BOK and the Ministry of Finance and Economy differed publicly on the BOK’s plans to use reserves to support the won. The government’s leniency towards the ailing Hyundai group suggests that the impetus behind economic reform may be slowing. The domestic economy Real GDP grew by just 4.6% year on year in the fourth quarter of 2000, taking real output growth for the year to 8.8%. Private consumption and investment growth were particularly slow during the quarter. Supply-side GDP data show manufacturing slowed sharply during the quarter. Domestic construction remains subdued in both volume and value terms. Unemployment rose to a recent high of 5% in February, but fell back slightly in March. Nominal wage growth in manufacturing slowed in the fourth quarter of 2000 year on year. EIU Country Report May 2001 © The Economist Intelligence Unit Limited 2001 4 Consumer and producer price inflation both accelerated in the first quarter of 2001 year on year. Market interest rates remained stable, with the nominal yields on the three-year Treasury bond and the three-year corporate bond touching all-time lows. The stockmarket performed generally poorly, and the government announced that it would use state pension funds to try to boost share prices. Foreign direct investment commitments were sluggish in the first quarter, reflecting the generally more cautious attitude of investors to emerging market assets. Hyundai Engineering and Construction has been taken over by its creditors following a debt-for-equity swap at end-March. Woori Financial Holdings, South Korea’s first financial holding company, was launched in April. Foreign trade and Preliminary data from the government show that South Korea recorded a payments cumulative merchandise trade surplus (customs-cleared basis) of US$2.4bn in January-March 2001, an improvement on the surplus of just US$437.8m recorded in the first three months of 2000. This mainly reflected a fall in the import bill. Export growth in the same period was sluggish. The current-account surplus fell by more than 50% in 2000, to just over US$11bn. Early repayment of IMF credits was partly responsible for a slight fall in foreign-exchange reserves at end-March to US$94.4bn from US$95.5bn at end-February.
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