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UNCLAS SECTION 01 OF 03 SEOUL 002006
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN EINV ENRG ETRD KS
SUBJECT: SOUTH KOREA ECONOMIC BRIEFING - DECEMBER 2009
1. (U) This cable is sensitive but unclassified and not/not intended
for Internet distribution.
In This Issue
-------------
-- Economy Records 3.2 Percent Quarterly Growth
-- ROKG, IMF Optimistic About 2010
-- ROKG Plans to Expand Stake in IMF and World Bank
-- ROKG Plans "Business Summit" for G20
-- Labor Productivity Below OECD Average
-- Consumer and Business Sentiment Down
-- South Korea Joins OECD Development Committee
-- Central Bank to Adopt Broader Inflation Target in 2010
-- Double-Digit Export Growth Buoys MKE Plans for Trade
-- Job Market Falls for First Time in Four Months
-- Central Bank Maintains Key Rate at Two Percent
-- ROKG to Propose Regulation of Global Capital Flow
-- Samsung Opens Micro-credit Bank
Domestic Economy
----------------
2. (SBU) Economy Records 3.2 Percent Quarterly Growth: The BOK
announced December 11 that real GDP for the third quarter grew 3.2
percent from the previous quarter, representing the largest
quarter-on-quarter growth since the first quarter of 2002. The
year-on-year change was an increase of 0.9 percent. Meanwhile, the
third quarter's real gross national income (GNI) rose 0.4 percent
from the second quarter.
3. (SBU) ROKG, IMF Optimistic About 2010:
The ROKG, IMF, and other observers project ROK economic growth of
between 4.3 and 5 percent for 2010. The Bank of Korea (BOK) on
December 10 forecast 4.6 percent GDP growth, with projected growth
of 0.7 percent in the first half of 2010 compared to the latter half
of 2009. It also predicted economic growth to be driven by the
private sector in 2010. The BOK said GDP in the fourth quarter of
2009 would rise 0.3 percent from the previous quarter and 0.2
percent year-on-year.
Meanwhile, during a December 7 visit to Korea, an International
Monetary Fund (IMF) delegation said Korea bears no risk of a double
dip recession and should be ready to normalize monetary stimulus
measures in a few months, perhaps by raising the benchmark interest
rate as a possible step. The IMF forecast Korea's GDP growth to be
0.25 percent in 2009, the highest projection among major
international organizations. For 2010, the IMF raised its forecast
from 3.6 percent to 4.5 percent growth.
Recent Projections of 2010 South Korea's Economic Growth:
-- Ministry of Strategy and Finance 5.0 percent
-- Korea Development Institute 5.5 percent
-- Bank of Korea 4.6 percent
-- IMF 4.5 percent
-- OECD 4.4 percent
-- Samsung Economic Research 4.3 percent
-- LG Economic Research 4.6 percent
-- SC First Bank 4.8 percent
4. (SBU) ROKG Plans to Expand Stake in IMF and World Bank: In an
effort to increase the value of Korea's "brand," the Presidential
Council on Nation Branding on December 11 announced it would
increase Korea's stake in the IMF and the World Bank to a level
equivalent to the ROK's GDP-to-global economy ratio. This ratio is
currently 1.95 percent for Korea, while its stakes in the IMF and
World Bank are only 1.34 percent and 1.01 percent, respectively.
5. (SBU) ROKG Plans "Business Summit" for G20: At a breakfast
meeting with members of the ruling Grand National Party, President
Lee Myung-bak said that over 400 of the world's major companies will
be invited to the G20 summit in Seoul next year. Lee explained that
the Seoul Summit would include corporate events because it will be
the first regular meeting of the G20 after the global economy enters
the recovery phase. Although few details are available, we
understand planning for IT and other industry-specific meetings is
SEOUL 00002006 002 OF 003
also underway.
6. (SBU) Labor Productivity Below OECD Average: According to the
Ministry of Knowledge Economy (MKE) and the Korea Productivity
Center on December 3, Korea's labor productivity (added-value per
employee)was USD 57,204 in 2008, ranking 22nd among the 30 OECD
member countries. This was an advance from 23rd in 2003 but still
lower than other industrialized countries. In particular, labor
productivity in the services sector totaled USD 33,233, which
represented a mere 44.8 percent of productivity in the U.S. and 59.9
percent of productivity in Japan.
7. (SBU) Consumer and Business Sentiment Down: The BOK announced on
November 25 that the consumer sentiment index for November fell to
113, down four points from October. After rising eight consecutive
months, the index's six sub-indices all edged downward, but remained
above the benchmark of 100. Likewise, the BOK said that its
Business Survey Index (BSI) of manufacturing business conditions for
November stood at 89, down three points from October. The BSI had
dipped to as low as 43 in February but rose to 92 in October, the
highest level in six years.
8. (SBU) South Korea Joins OECD Development Committee: On November
25, the OECD's Development Assistance Committee (DAC) by unanimous
consent admitted Korea as its 24th member. Korea, as the first
country to transform itself from a DAC beneficiary into a DAC
benefactor, is dramatically raising the profile of its development
programs. The ROKG has committed to tripling Official Development
Assistance spending to 0.25 percent of its Gross National Income by
2015, and plans to host the 2011 High-Level Forum on Aid
Effectiveness.
9. (SBU) Central Bank to Adopt Broader Inflation Target in 2010: The
BOK announced that its 2010-12 inflation target will be three
percent with a tolerance range of plus or minus one percent, which
is twice the current range. The increased range reflects concern
that increasing international oil prices and a weakening won could
increase the possibility of greater inflation volatility.
10. (SBU) Double-Digit Export Growth Buoys MKE Plans for Trade: MKE
stated on December 1 that exports amounted to USD 34.27 billion in
November, up 18.8 percent from a year earlier, marking the first
month of year-on-year export growth since October 2008. Imports
also increased, totaling USD 30.22 billion, up 4.7 percent from
November 2008. Accordingly, the November trade surplus reached USD
4.05 billion, surpassing the surplus of USD 3.63 billion recorded in
October. Meanwhile, the MKE announced plans to make Korea one of
the world's eight major exporters by reaching USD 1.3 trillion in
trade volume and USD 650 billion in exports by 2014. This goal
would require Korea to increase exports by an annual average of 12.5
percent over the next five years. To this end, the government will
proceed to create trade infrastructure including financial system
improvements related to exports. In 2010, exports and imports are
expected to rise 13 percent and 21 percent, respectively, from 2009
to USD 410 billion and USD 390 billion, resulting in a trade surplus
of about USD 20 billion.
11. (SBU) Job Market Falls for First Time in Four Months: The Korean
economy lost 10,000 jobs in November, with many businesses remaining
reluctant to hire new workers amid the continued uncertain global
economic outlook. Despite improving overall macroeconomic
conditions, the job market here has remained sluggish throughout the
year. The government's hiring of temporary workers in various
sectors sustained the labor market but those effects have diminished
in recent months. According to a report of the National Statistical
Office on December 16, the number of employed stood at 23.8 million
last month, down 10,000 from a month earlier, marking the first
decline in four months. The number of unemployed was 819,000 in
November, up 69,000 from the previous year, with the seasonally
adjusted jobless rate rising to 3.5 percent from 3.4 percent.
Finance and Structural Policies
-------------------------------
12. (SBU) Central Bank Maintains Key Rate at Two Percent: On
December 10, the BOK Monetary Policy Committee announced it would
keep the benchmark interest rate at 2.0 percent, maintaining a
record-low rate for ten straight months. The BOK stated in its
SEOUL 00002006 003 OF 003
current economic development report that real economic activity
continues to recover. However, growth in facilities investment
slowed, and the amount of completed construction work declined. The
central bank added that the economy will maintain positive
quarter-on-quarter growth amid lingering uncertainties.
13. (SBU) ROKG to Propose Regulation of Global Capital Flow: A
senior finance ministry official said on December 17 that Korea
would propose at the G20 a mechanism to curb international capital
movements, particularly "hot'' money, to ease the side effects of
cross border money flow on emerging economies. Deputy Strategy and
Finance Minister Shin Je-yoon said the short-term speculative money
movements across the globe are wreaking havoc on many countries,
particularly ones that heavily rely on trade and other international
transactions. The ROKG, he continued, would put forward separate
agendas for the developed, emerging and developing countries: the
strengthening of financial market regulations for advanced
countries, cross border capital movement regulation for emerging
economies, and development financing for developing countries.
14. (SBU) Samsung Opens Micro-Credit Bank: Samsung Group, the
nation's top business conglomerate, opened a microcredit bank on
December 15 that will lend money to low-income earners at relatively
low interest rates. The group launched the bank in Suwon, Gyeonggi
Province, where its affiliates, such as Samsung Electronics, are
headquartered. The Bank will handle 300 billion won (USD 254
million) in funds over the next 10 years financed by affiliates of
the group. The microcredit concept has been promoted by the
Financial Services Commission (FSC) in the aftermath of the
worldwide economic turmoil. Besides Samsung, other major chaebols,
such as Hyundai Automotive and LG groups as well as commercial
lenders such as Kookmin Bank, are looking to follow suit and set up
loan opportunities for those in need. The FSC aims to encourage
local conglomerates and lenders to establish more than 20 branches
by next May with an eventual goal of increasing the tally to
hundreds in the near future. The overall amount of the fund is
expected to reach 2 trillion won (USD 1.7 billion) over the next 10
years and approximately 200,000 people who would otherwise struggle
to obtain loans from banks due to low credit ratings are likely to
benefit.
STEPHENS