200709

Vol. 29 | No. 9

Republic of Korea

Economic Bulletin The Green Book : Current Economic Trends Overview

3

1. Global economy

4

2. Private consumption

8

3. Facility investment

12

4. Construction investment

14

5. Exports and imports (customs clearance basis)

16

6. Industrial activity

18

7. Service sector activity

20

8. Employment

22

9. Financial markets

24

9.1 9.2 9.3 9.4

Stock market Exchange rate Bond market Money supply & money market

10. Balance of payments

28

11. Prices and international commodity prices

30

11.1 Prices 11.2 International oil and commodity prices 12. Real estate market

34

12.1 Housing market 12.2 Land market 13. Composite indexes of business cycle indicators

Policy Issues

38

40

2007 Tax revision: Aiming at a simple, fair, and pro-growth tax system

Economic News Briefing

48

Statistical Appendices

53

The Green Book Current Economic Trends Overview The recent Korean economy remains on a solid recovery track on the back of robust exports and improving domestic demand indicators including consumption and investment.

Consumer goods sales continued solid growth in July, up 9.8 percent year-on-year, led by a sales pick-up of durable goods including automobiles while non-durable goods sales including food and beverage also expanded.

Estimated facility investment slowed down by 1.3 percent in July from the previous month due to decreased investment in semiconductor. Construction completed increased 12.4 percent year-on-year on the back of continued sound performance in the public sector and expansion in the private sector.

Industrial activity in July highly expanded supported by recovering domestic demand and continued export growth. Meanwhile, service activities also recorded the highest increase of 9.8 percent since October 2002.

August exports (customs clearance basis, current value) maintained a double-digit growth for the 19th consecutive month thanks to strong demand from overseas including the eurozone and China.

Meanwhile, despite the service account deficits, current account in July registered a US$15.6 billion surplus remaining in positive territory for three consecutive months on the back of strong surplus in goods trade account sustained from the previous month and improvements in income account.

Employment continued expansion this year. The number of workers on payrolls has steadily increased since 2007, while unemployment rate has also been decreasing marking 3.2 percent in July.

Price stability continued in August led by stabilizing prices of oil products and agricultural and fishery products.

The Korean economy is expected to expand a mid 4 percent (around 4.6%) in 2007 with its growth lower in the first half and higher in the second, provided external conditions do not deteriorate sharply.

Exports have shown continued growth and domestic demand also has improved. Given such an excellent industrial activity indicators of July, the effect of the volatility of global financial market stemming from subprime crisis to the Korean real economy seems modest.

However, there remain downside risks such as continued slowdown of the US economy, additional tightening of China’s economy and rising international oil prices. Therefore, various economic indicators should be closely monitored while risk management needs to be maintained to respond to changing external conditions.

Economic Bulletin

3

1. Global economy Worry over credit crunch caused by US subprime mortgage woes has spread to global financial market. However, real economies of major countries are solid and the global financial market has been stabilizing on the back of liquidity boosting measures taken by central banks around the world.

US

The US economy is more likely to slow down in the second half of 2007 due to financial market jitters stemming from subprime crisis and prolonged housing market recession.

Credit squeeze stemming from tightened mortgage lending terms and rising loan interest rates deteriorated the housing recession as shown in declining housing sales and soaring housing inventory.

There have been growing concerns over a slowdown in consumer spending, which accounts for 70 percent of GDP, due to reverse wealth effect stemmed from housing market recession and drop in stock prices and sluggish consumer confidence.

However, real economic indicators such as corporate investment, industrial production and export have maintained strong performance overall.

As housing recession is projected to be prolonged longer than expected because of the subprime mortgage crisis, the possibility of interest rate cuts by the end of the year is raised.

(Percentage change from previous period) 2006

2007

Annual

Q3

Q4

Q1

Q2

May

Jun

Jul

2.9

1.1

2.1

0.6

4.0

-

-

-

- Personal consumption expenditure

3.1

2.8

3.9

3.7

1.4

-

-

-

- Corporate fixed investment

6.6

5.1

-1.4

2.1

11.1

-

-

-

- Construction investment for housing

-4.6

-20.4

-17.2

-16.3

-11.6

-

-

-

Industrial production

3.9

4.0

-1.5

1.1

3.3

-0.2

0.6

0.3

Retail sales

6.2

0.9

0.2

1.5

1.3

1.6

-0.7

0.3

New non-farm payroll employment (q-o-q, thousand)

189

202

177

142

145

188

126

92

-18.1

-8.4

-0.8

-13.5

2.9

-2.9

-4.0

2.8

2.5

2.8

2.6

2.6

2.3

2.2

2.2

2.2

Real GDP

New home sales Core consumer prices (y-o-y, %)

4

September 2007

1-1

US GDP (q-o-q, annualized rate) Source: US Department of Commerce

1-2

US non-farm payroll employment (m-o-m change) Source: US Department of Labor

1-3

US federal funds rate and consumer prices Source: US Federal Reserve Board & Department of Labor

Economic Bulletin

5

China

The Chinese economy maintained high growth driven by surges in export, industrial production and fixed asset investment, registering 5.6 percent of CPI growth rate, the highest in recent 10 years.

Moreover, consumer prices and investment in securities and real estate maintained significant increase on the back of soaring money supply (M2) and loan. The People’s Bank of China raised key interest rate on July 21 for the fourth time this year.

(Percentage change from same period in previous year) 2006

2007

Annual

Q3

Q4

Q1

Q2

May

Jun

Jul

Real GDP

11.1

10.6

10.4

11.1

11.9

-

-

-

Fixed asset investment (accumulated)

24.5

28.2

24.5

25.3

26.7

25.9

26.7

26.6

Retail sales

13.7

13.8

14.3

14.9

15.8

15.9

16.0

16.4

Industrial production

16.6

16.2

14.8

18.3

18.7

18.1

19.4

18.0

Exports

27.2

28.7

29.1

27.8

27.4

28.7

27.1

34.2

Consumer prices

1.5

1.3

2.0

2.7

3.7

3.4

4.4

5.6

Japan

Japan’s GDP growth rate in the second quarter of 2007 slightly lowered from the previous quarter to 0.1 percent due to sluggish consumption and decrease in export to the US. Core CPI has been falling for the sixth consecutive month. In the mean time, interest rate raise is forecast to be delayed because of financial market jitters caused by subprime crisis.

(Percentage change from previous period) 2006

2007

Annual

Q3

Q4

Q1

Q2

May

Jun

Jul

Real GDP

2.2

0.1

1.3

0.8

0.1

-

-

-

Industrial production

4.8

1.3

2.2

-1.3

0.1

-0.4

1.2

-0.4

Retail sales

0.1

-0.8

-0.8

1.9

-0.7

0.6

-0.8

-2.4

Exports (y-o-y, %)

14.6

15.6

11.2

12.5

13.1

15.1

16.2

11.7

Core consumer prices (y-o-y, %)

0.1

0.2

0.1

0.1

-0.1

-0.1

-0.1

-0.1

Eurozone

The eurozone registered 0.3 percent of economic growth in the second quarter of 2007, lower than that of the previous quarter (0.7%) due to sluggish construction industry of Germany and poor investment of France.

However, the economic growth is expected to continue as employment stayed healthy and economic sentiment indicators also maintained solid performance.

(Percentage change from previous period) 2006 Annual

Q3

2007 Q4

Q1

Q2

May

Jun

Jul

Real GDP

2.7

0.6

0.9

0.7

0.3

-

-

-

Industrial production

4.0

0.8

0.8

0.8

0.3

1.0

-0.1

-

Retail sales

2.1

0.6

0.4

-0.1

0.2

-0.7

0.4

-

Exports (y-o-y, %)

11.2

8.0

11.6

9.3

8.9

6.7

9.1

-

Consumer prices (y-o-y, %)

2.2

2.1

1.8

1.9

1.9

1.9

1.9

1.8

6

September 2007

1-4

China’s GDP and fixed asset investment Source: National Bureau of Statistics of China

1-5

Japan’s GDP growth Source: Cabinet Office & Ministry of Economy, Trade and Industry, Japan

1-6

Eurozone GDP growth and industrial production Source: Eurostat

Economic Bulletin

7

2. Private consumption The pace of private consumption growth expanded, maintaining the 4 percent growth range in the second quarter of 2007 followed by the previous quarter. It gained on-year 4.2 percent or on-quarter 0.8 percent.

Private consumption (y-o-y, %): 5.2 (Q1 2006)

4.1 (Q2)

(SA*, q-o-q, %): 1.2 (Q1 2006) * SA: seasonally adjusted

4.0 (Q3)

0.6 (Q2)

3.7 (Q4)

0.9 (Q3)

4.1 (Q1 2007)

1.0 (Q4)

4.2 (Q2)

1.5 (Q1 2007)

0.8 (Q2)

The growth of consumer goods sales in July jumped 9.8 percent year-on-year, compared with the previous month’s on-year growth of 4.8 percent. On-month gain also reversed course in July, increasing by 1.6 percent from a 0.4 percent decrease in June.

Durable goods sales maintained a robust growth (up 21.9%) in July centered on the automobile sales (up 5.2%), while non-durable goods sales including food and beverages expanded growth, up 4.8 percent, compared with the previous month (up 0.5%).

(Percentage change from same period in previous year) 2005

2006

2007

Annual

Annual

Jul

Q3

Q4

Q1

Q2

Consumer goods sales

4.1

4.7

-0.8

2.9

4.5

7.1

(Seasonally adjusted)

-

-

-3.5

-0.2

3.0

6.5

11.0

-0.7

11.4

- Durable goods

2

3

Automobiles

May

Jun1

Jul1

5.3

6.0

4.8

9.8

2.5

-0.2

1.7

-0.4

1.6

9.6

17.0

14.1

15.7

11.5

21.9

1

9.5

8.1

-18.0

4.2

1.3

9.8

9.3

12.3

5.2

27.6

- Semi-durable goods4

7.9

5.1

1.8

2.9

3.6

6.4

3.6

3.3

5.2

5.0

- Non-durable goods

1.2

1.1

-2.3

-1.7

2.0

2.1

0.9

2.1

0.5

4.8

5

1. Preliminary 2. Percentage change from previous period 3. Durable goods (25.4%): Automobiles, electronic appliances, furniture, telecommunications devices, etc.

4. Semi-durable goods (24.0%): Clothing, footwear, etc.

5. Non-durable goods (50.5%): Food, medicine, cosmetics, fuel, tobaccos, etc.

The sales growth in department stores turned to a decrease and that in large discount stores started to slow down while the sales growth in other retail stores expanded.

(Percentage change from same period in previous year) 2005

2006 Annual

Jul

Q3

Q4

Q1

Q21

May

Jun1

Jul1

- Department stores

3.1

3.7

2.2

0.4

0.7

-2.1

-1.6

-1.8

2.0

-1.6

- Large discount stores

8.3

8.8

8.6

6.4

11.6

10.2

8.4

7.4

10.4

4.1

- Other retail stores

1.3

0.6

-3.1

0.4

1.7

2.1

0.2

1.1

0.5

3.7

2

1. Preliminary 2. Stores at traditional markets, shopping malls and underground malls

8

2007

Annual

September 2007

2-1

Private consumption Source: The Bank of Korea (national accounts)

2-2

Consumer goods sales Source: Korea National Statistical Office (industrial activity trend)

2-3

Consumer goods sales by type Source: Korea National Statistical Office (industrial activity trend)

Economic Bulletin

9

Consumption-related indicators for August, on the whole, continued a favorable growth.

Growth in credit card use maintained a double-digit growth while the sales volume at department and discount stores improved compared with the previous month.

Value of credit card use (y-o-y, %) 12.1 (Mar 2007)

16.2 (Apr)

12.8 (May)

13.7 (Jun)

18.4 (Jul)

14.8 (Aug)

Department store sales (y-o-y, %) 4.1 (Mar 2007)

-2.3 (Apr)

-0.1 (May)

4.4 (Jun)

0.2 (Jul)

2.9 (Aug)

1.9 (Jun)

-2.3 (Jul)

Discount store sales (y-o-y, %) 3.6 (Mar 2007)

-5.5 (Apr)

-3.1 (May)

0.0 (Aug)

Source: Ministry of Commerce, Industry and Energy The Credit Finance Association Ministry of Finance and Economy (August data)

Domestic sales of domestically manufactured automobiles jumped 11.0 percent in August from a year ago on the back of soaring sales of automakers (Kia and Ssangyong) which went on a strike in the same month a year earlier.

Domestic sales of domestically manufactured automobiles (thousand units): 106 (Mar 2007) (y-o-y, %): 4.4 (Mar 2007)

100 (Apr)

10.5 (Apr)

105 (May)

12.1 (May)

106 (Jun)

5.7 (Jun)

102 (Jul)

35.4 (Jul)

99 (Aug)

11.0 (Aug)

The recent recovery in consumption is deemed to be sustainable given that it is mainly supported by the improving consumption environment including income and consumer sentiment since the second half of 2006.

Real income also maintained an increase nearing the GDP growth rate.

Real GNI and GDP

(Growth rate, y-o-y, %)

Q2 2006

Q3

Q4

Q1 2007

Q2

Real GNI

1.7

2.4

3.3

3.4

4.7

Real GDP

5.1

4.8

4.0

4.0

5.0

Consumer sentiment indicators maintained its upturn trend from the beginning of the year.

Consumer expectations index (base=100) 93.7 (Aug 2006) 97.8 (Mar)

94.8 (Sep)

100.1 (Apr)

93.9 (Oct)

101.1 (May)

95.2 (Nov) 101.5 (Jun)

93.7 (Dec)

96.1 (Jan 2007)

98.1 (Feb)

102.6 (Jul)

Source: Korea National Statistical Office

Consumer sentiment index (base=100) 101 (Q2 2006)

96 (Q3)

98 (Q4)

103 (Q1 2007)

108 (Q2)

Source: The Bank of Korea

Sustainability of trend growth in private consumption will likely be determined by income and employment conditions.

Number of employed (y-o-y, thousand) 288 (Q3 2006)

278 (Q4)

264 (Q1 2007)

289 (Q2), 315 (Jun)

Real household income (nationwide, y-o-y, %) 1.1 (Q3 2006)

10

September 2007

5.4 (Q4)

4.0 (Q1 2007)

1.0 (Q2)

303 (Jul)

2-4

Department store and discount store sales (current value) Source: Ministry of Commerce, Industry and Energy (monthly retail sales)

2-5

Domestic automobile sales Source: Korea Automobile Manufacturers Association (monthly automobile industry trend)

2-6

Consumer expectations index and present situation index Source: Korea National Statistical Office (monthly consumer survey index)

Economic Bulletin

11

3. Facility investment Facility investment in the second quarter of 2007 (preliminary GDP) made a jump on the back of the recovery in domestic demand. It grew 11.9 percent year-on-year and 3.4 percent quarter-on-quarter.

(Percentage change from same period in previous year) 2005 Q1

Q2

Q3

Q4

Annual

Q1

Q2

5.7

7.0

7.2

11.1

5.3

7.6

10.8

11.9

-

-1.0

2.2

3.8

0.1

-

4.4

3.4

7.4

3.3

9.5

12.4

6.5

7.9

12.8

10.9

-1.8

25.9

-3.5

4.8

-0.2

5.9

2.2

17.7

3

- Machinery - Transportation equipment 1. Preliminary

2. National accounts

20071

Annual Facility investment2 (Seasonally adjusted)

2006

1

3. Percentage change from previous period

Growth in facility investment (estimated index) in July slowed down compared with the previous month (9.2%) due to the decrease in special industrial machinery such as semiconductor manufacturing devices, registering a modest growth of 1.3 percent from a year earlier. On the other hand, domestic machinery shipments expanded its growth pace by increasing 11.8 percent year-on-year.

As leading indicators including domestic machinery orders and machinery imports have continued its expansion, facility investment is expected to continue its growth trend.

Machinery imports (%) 13.3 (Feb 2007)

16.0 (Mar)

42.7 (Apr)

33.7 (May)

24.9 (Jun)

6.3 (Jul)

15.1 (Aug 1-20)

Domestic machinery orders in July witnessed a strong growth in the public sector due to the low comparison base of the last year with the growth in the private sector continuing. The overall domestic machinery orders in July jumped 30.6 percent from a year before.

(Percentage change from same period in previous year) 2005

2006

Annual Annual Estimated facility investment2 - Domestic machinery shipments Domestic machinery orders

2007

Jul

Q3

Q4

Q1

Q2

1

May

Jun1

Jul1

6.3

7.4

3.9

11.8

5.1

11.3

12.1

11.4

9.2

1.3

0.6

4.7

-6.4

4.0

6.7

6.5

5.9

6.2

6.8

11.8

5.7

18.8

6.2

21.0

16.7

15.3

7.4

18.0

4.1

30.6

- Public

-1.3

7.1

-38.8

19.0

22.1

12.1

-23.5

28.6

-52.0

58.0

- Private

6.7

20.4

13.6

21.3

15.8

15.6

10.5

17.3

13.7

28.1

1. Preliminary

2. Industrial activity

The Business Survey Index (BSI) for facility investment result and prospect in the manufacturing sector compiled by the Bank of Korea slightly declined within the range similar to those of the previous month.

Business Survey Indexes (base=100)

2007 Apr

May

Jun

Jul

Aug

Sep

Manufacturing facility investment result

99

100

100

100

99

-

Manufacturing facility investment prospect

97

101

102

100

100

99

Source: The Bank of Korea

12

September 2007

3-1

Facility investment by type Source: The Bank of Korea (national accounts)

3-2

Machinery orders and estimated facility investment (3-month average) Source: Korea National Statistical Office (industrial activity trend)

3-3

Machinery imports Source: Korea International Trade Association (KITA)

Economic Bulletin

13

4. Construction investment Construction investment in the second quarter of 2007 (preliminary GDP) increased 3.2 percent year-on-year, maintaining 3 percent range growth since the first quarter. It decreased 1.3 percent from the previous quarter.

(Percentage change from same period in previous year) 2005

Construction investment2 (Seasonally adjusted)

3

- Building construction - Civil engineering works 1. Preliminary

2. National accounts

2006

20071

1

Annual

Q1

Q2

Q3

Q4

Annual

Q1

Q2

-0.2

0.2

-5.0

-0.1

3.2

-0.4

3.9

3.2

-

0.0

-0.9

2.0

1.9

-

0.8

-1.3

-1.4

1.1

-5.9

-2.4

-0.2

-2.0

2.1

2.5

1.5

-1.4

-3.9

3.4

7.4

2.0

7.4

4.2

3. Percentage change from previous period

Construction completed (current value) in July accelerated growth of 12.4 percent compared to the same month in previous year, fueled by an increase of 14 percent in the public sector and expanded growth pace in the private sector from 0.5 percent to 9.8 percent.

(Percentage change from same period in previous year) 2005

Construction completed2 - Public - Private 1. Preliminary

2006

2007

Annual

Annual

Jul

Q3

Q4

Q1

Q21

May

Jun1

Jul1

4.1

3.7

-2.4

4.8

6.0

6.5

5.2

5.4

4.2

12.4

-3.7

1.9

-2.0

9.0

12.6

18.8

11.2

15.1

10.9

14.0

7.5

4.9

-1.4

3.8

4.0

1.9

1.6

1.0

0.5

9.8

2. Industrial activity

Despite the sharp increase in the public sector (up 51.1%), construction orders in July turned back on the downward trend posting a 14.9 percent decrease year-on-year due to the rapid decrease in the private sector orders (down 38.8%).

(Percentage change from same period in previous year) 2005 Annual

2006 Annual

Jul

2007 Q3

Q4

Q1

Q2

1

May

Jun1

Jul1

7.3

9.0

6.8

37.1

27.1

26.3

26.3

5.2

28.8

-14.9

- Public

-1.7

-6.3

-11.2

21.2

2.7

49.3

21.2

15.6

6.6

51.1

- Private

14.5

12.8

10.4

36.8

28.3

21.8

17.0

-6.8

19.4

-38.8

- PPP

-36.4

55.9

14.3

552.5

362.1

-64.3

683.4

611.2

670.8

514.6

Construction orders2

3

1. Preliminary

2. Current value

3. Public private partnership

Although the construction sector is expected to reverse course derailing from the decreasing trend due to the low comparison base set in the previous year, improvement in large scale seems unlikely.

14

September 2007

4-1

Construction investment Source: The Bank of Korea (national accounts)

4-2

Construction completed and housing construction Source: Korea National Statistical Office (construction completed) Ministry of Construction and Transportation (housing construction)

4-3

Leading indicators of construction investment Source: Korea National Statistical Office (construction orders) Ministry of Construction and Transportation (building construction permit area)

Economic Bulletin

15

5. Exports and imports (customs clearance basis) Exports in August posted US$31.23 billion, increasing 14.4 percent from the same month in previous year.

By export category (estimated, Ministry of Commerce, Industry and Energy), automobiles (up 43.0%), machinery (up 38.5%), steel (up 30.3%), and semiconductor (up 14.8%) maintained a solid growth.

By region (estimated, Ministry of Commerce, Industry and Energy), exports to the Middle East (up 56.8%), the EU (up 26.2%), and China (up 12.9%) maintained a high growth.

(US$ billion) 2006

Exports (y-o-y, %)

2007

Jun

Jul

Aug

Jan-Aug

Jun

Jul

Aug

Jan-Aug

27.95

25.77

27.29

208.42

32.02

30.36

31.23

239.31

17.9

10.9

16.9

13.8

14.6

17.8

14.4

14.8

Average daily exports

1.22

1.15

1.14

1.14

1.42

1.32

1.30

1.30

Imports

26.02

25.55

27.03

201.84

28.46

29.25

29.69

228.84

22.2

18.8

22.9

20.3

9.3

14.5

9.8

13.4

1.13

1.14

1.13

1.1

1.27

1.27

1.24

1.24

(y-o-y, %) Average daily imports

August imports rose 14.9 percent year-on-year to US$29.37 billion. Consumer goods and capital goods showed a strong growth while imports of raw materials slightly reduced due to the decrease in oil prices.

Raw materials (%) 19.8 (Apr 2007)

14.9 (May)

9.4 (Jun)

16.8 (Jul)

9.5 (Aug 1-20)

10.7 (Jun)

8.9 (Jul)

11.8 (Aug 1-20)

12.2 (Jun)

23.8 (Jul)

Capital goods (%) 25.6 (Apr 2007)

13.3 (May)

Consumer goods (%) 16.8 (Apr 2007)

15.1 (May)

15.2 (Aug 1-20)

Trade surplus in August increased by US$0.43 billion from the previous month to post US$1.54 billion driven by swifter export growth than import.

(US$ billion) 2006

Trade balance

2007

Jun

July

Aug

Jan-Aug

Jun

July

Aug

Jan-Aug

1.93

0.23

0.26

6.58

3.56

1.11

1.54

10.47

September export growth is likely to slow temporarily affected by reduced working days (down on-year 4 days) due to Chuseok (Korean Thanksgiving) holidays which fall in September this year instead of October. However, it is expected that the robust growth in exports will be back on the recovery track in October.

16

September 2007

5-1

Exports (customs clearance basis) Source: Ministry of Commerce, Industry and Energy (export and import trend)

5-2

Imports (customs clearance basis) Source: Ministry of Commerce, Industry and Energy (export and import trend)

5-3

Trade balance Source: Ministry of Commerce, Industry and Energy (export and import trend)

Economic Bulletin

17

6. Industrial activity July industrial production continued its growth on robust exports, low comparison base set in the previous year, and improving demand indicators, up to 14.3 percent compared to the same month from the last year.

The expanded growth of industrial production from 7.7 percent to 14.3 percent is largely attributed to increased working days (up 0.5 day), increased production of semiconductors (up 26.2%), and the low base stemming from auto workers’ strikes in the previous year when auto production decreased by 28.8 percent in July.

Even excluding automobile sector, the industrial production grew 12.6 percent, manifesting the improved trend of industrial production in the second half of 2007.

Contribution to on-year industrial output growth (Jul 2007, %p) Semiconductors (6.97), automobiles (2.53), machinery (0.59), audiovisual telecommunications (0.85)

Shipments for domestic demand as well as exports expanded 12.6 percent and 17.4 percent respectively, while the inventory growth remained similar to the previous month, standing at 3.1 percent.

(Percentage change from same period in previous year) 2006

Production (q-o-q)

2007

Annual

Q2

Jul

Q2

-

0.8

-4.0

4.4

1

May

Jun1

Jul1

1.0

1.9

2.1

(y-o-y)

10.1

11.5

4.9

7.1

6.7

7.7

14.3

(days operated reflected)

10.6

12.0

7.9

7.1

6.4

9.5

12.0

- Manufacturing

10.5

12.1

5.2

7.1

6.7

7.7

14.8

12.6

14.7

7.1

8.3

7.8

9.3

16.9

Heavy chemical industry

1.1

0.3

-3.5

1.1

1.6

-0.5

4.1

Shipment

Light industry

7.8

9.0

1.8

7.2

7.1

7.5

14.9

- Domestic demand

4.5

4.9

-5.8

4.9

5.6

3.8

12.6

- Exports

11.9

14.2

11.3

10.0

8.8

11.8

17.4

Inventory

6.2

7.5

7.2

2.8

2.5

2.8

3.1

Average operation ratio (%)

81.1

80.7

76.7

82.8

83.3

82.7

83.1

Production capacity

3.4

4.0

3.6

2.7

2.7

3.2

3.6

1. Preliminary

Industrial activity in August is forecast to maintain upward trend on robust exports and improving domestic demand including consumption. However, improvement in large scale seems unlikely because irregular factors such as low comparison base are excluded.

18

September 2007

6-1

Industrial production Source: Korea National Statistical Office (industrial activity trend)

6-2

Average manufacturing operation ratio Source: Korea National Statistical Office (industrial activity trend)

6-3

Inventory Source: Korea National Statistical Office (industrial activity trend)

Economic Bulletin

19

7. Service sector activity Service activity in July grew 9.8 percent from a year earlier, highest in almost 5 years since October 2002 when it increased 11.0 percent year-on-year. The robust growth was attributable to ongoing recovery of domestic consumption and a relative comparison to the low base set last year due to strikes and floods.

All business categories of the service sector led by financial & insurance services (up 19.1%), entertainment, cultural & sports services (up 15.1%) and transportation services (up 10.4%) expanded output in July. Wholesale & retail sales and hotels & restaurants also stayed on the upward track as domestic demand continued its recovery.

(Percentage change from same period in previous year) Weight

2006

2005

2007

Wholesale & retail

27.6

2.1

4.0

3.7

4.2

4.3

3.7

4.9

3.8

3.9

3.7

7.1

Contri-2 bution 1.77

Hotels & restaurants

7.7

0.3

2.1

3.9

2.4

2.3

-0.2

1.6

2.3

2.7

2.8

2.9

0.21

Transportation services

8.8

4.2

6.3

6.4

6.3

5.9

6.9

6.7

5.5

6.1

7.0

10.4

0.97

Communication services

5.8

4.1

2.8

2.3

2.9

3.2

2.6

3.3

3.2

4.1

2.6

3.2

0.23

Financial & insurance services

17.6

7.3

7.9

13.2

9.2

4.9

4.8

9.1

15.6

14.3

20.8

22.0

4.11

Real estate & renting

5.4

8.5

10.2

10.5

8.2

7.4

14.3

5.8

3.3

-0.2

6.6

7.4

0.40

Business services

8.5

2.8

5.9

5.6

5.7

5.7

6.4

5.3

6.7

6.2

6.4

7.0

0.60

Educational services

8.6

0.7

2.3

1.4

2.5

1.4

4.4

2.7

1.8

-0.3

4.0

5.6

0.48

Healthcare & social welfare services

4.0

7.3

10.0

11.1

8.1

11.9

8.9

9.6

9.6

12.1

9.0

8.2

0.34

Entertainment, cultural and sports services

3.5

3.0

2.5

4.9

2.7

-0.9

3.7

5.7

6.8

6.9

8.9

15.1

0.57

Other public & personal services

2.6

1.9

3.8

4.7

4.1

3.9

2.5

1.9

1.2

1.7

2.8

3.3

0.08

Annual Annual

Q1

Q2

Q3

Q4

Q1

Q2

1

May

Jun1

Jul1

1. Preliminary 2. Contribution to July growth (%p)

Although service activity is expected to have continued its upward trend in August, the growth pace is likely to slow down. While sustained robust recovery of the real economy including consumption and investment hints at further growth in service sector activity in August, its upward trend may have slacken the pace given the adjustment of stock market and weak preliminary consumption indicators during the month.

KOSPI (monthly average) 1,432 (Mar 2007)

1,517 (Apr)

1,615 (May)

1,754 (Jun)

1,912 (Jul)

1,811 (Aug 1-29)

Value of credit card use (y-o-y, %) 12.1 (Mar 2007)

16.2 (Apr)

12.8 (May)

16.0 (Jun)

18.4 (Jul)

11.5 (Aug 1-15)

Domestic sales of domestically manufactured automobiles (y-o-y, %) 4.4 (Mar 2007)

20

September 2007

10.5 (Apr)

12.1 (May)

5.7 (Jun)

35.4 (Jul)

-7.8 (Aug 1-15)

7-1

Service industry Source: Korea National Statistical Office (service industry activity trend)

7-2

Wholesale and retail sales Source: Korea National Statistical Office (service industry activity trend)

Jul 2007 service industry by business

serv ices Hea l t h serv care ices & s ocia l we lfar e Ente spo rtainm rts s en ervi t, cu ces ltura l& Oth & p er pub erso lic, nal repa serv ir ices

Edu cati ona l

Com mun icat ion serv ices Fina serv ncial & ices insu ranc e Rea l es tate & re ntin g Bus ines s se rvic es

Tran spo rtat ion

rest aura nts Hot els &

Wh oles ale &

reta il

Source: Korea National Statistical Office (service industry activity trend)

Tota l ind ex

7-3

Economic Bulletin

21

8. Employment The number of workers on payroll in July increased by 303,000 year-on-year, exceeding the 300,000 mark for two consecutive months, to post 23,750,000 mainly boosted by recent economic strength and comparison to a relatively low base set a year ago.

Service sector employment sustained rapid growth by expanding 433,000 from a year earlier backed by robust service sector activity. The record exceeding the 400,000 level was maintained for the second consecutive month following June.

Employment in the manufacturing sector showed a somewhat faster pace of decline in July (down 53,000) with the progress of automation and the overseas relocation of production bases. Recent trends of industrial activity driven by capital-intensive businesses such as semiconductor also contributed to the weaker employment in the sector.

Hiring in the construction sector climbed 4,000, down from the previous month’s increase of 18,000, as construction completed in the private sector slightly contracted.

Employment in agriculture, forestry and fisheries continued to widen the decrease shedding 80,000 job positions, affected by ongoing restructuring process.

As for the type of employment, the number of waged workers continued to increase (up 406,000), although self-employed small business owners and family members working without pay in family-owned businesses decreased by 45,000 and 58,000, respectively. In particular, the number of regular workers surged 546,000 in July as companies tried to secure human resources amid the improving economic outlook and as more non-regular workers were admitted to the status of a regular employee along with the implementation of the Act on Non-Regular Workers.

The employment rate sustained the increasing trend, up 0.2 percentage points year-on-year in July to 60.6 percent. The unemployment rate maintained downward tendency falling 0.2 percentage points from a year earlier to 3.2 percent while the youth unemployment dropped 0.4 percentage points to 7.6 percent from the same month of previous year.

(Change from same period in previous year, thousand) 2006

Employment growth

2007

Jul

Annual

Q1

Q2

Q3

Q4

Q1

Q2

Jun

Jul

263

295

331

283

288

278

264

289

315

303

- Agriculture, forestry and fishery

-57

-31

-34

-65

-28

4

-42

-52

-63

-80

- Manufacturing

-53

-67

-72

-77

-57

-62

-51

-55

-44

-53

- Construction

-19

21

34

7

13

29

46

30

18

4

- Services

391

371

403

419

358

304

309

367

403

433

Unemployment rate (%)

3.4

3.5

3.9

3.4

3.3

3.2

3.6

3.2

3.2

3.2

Employment rate (%)

60.4

59.7

58.5

60.4

60.0

59.9

58.6

60.6

60.8

60.6

22

September 2007

8-1

Number of employed and employment growth Source: Korea National Statistical Office (employment trend)

8-2

Share of employed by industry Source: Korea National Statistical Office (employment trend)

8-3

Unemployment rate and number of unemployed Source: Korea National Statistical Office (employment trend)

Economic Bulletin

23

9. Financial markets 9.1 Stock market The Korean stock market in August underwent an adjustment period making corrections on reacting to the global credit crunch stemmed from the US subprime mortgage crisis.

The KOSPI plunged to 1,638.1 points on August 17 with a fall in global stock markets triggered by credit crunch worries and continued net selling by foreign investors. However, the stock market rebounded toward the end of August to wrap up the month at 1,841.7 points as measure to stabilize vulnerable credit market put fourth by global central banks helped ease the negative investor sentiment while the inflow of money into domestic equity funds continued recording 4.1 trillion won during the month.

The KOSDAQ was also adjusted falling to 673.5 points on August 17, before rebounding at a later month riding on the back of improved investor sentiment to close the month at 775.1 points.

In August, net selling by foreign investors amounted to 8,703.6 billion won while net buying by institutional investors and individual investors recorded 6,262.5 billion won and 857.3 billion won respectively.

(End-period, point, trillion won) KOSPI

Stock price index Market capitalization

KOSDAQ

2006

Aug 2007

Change1

2006

Aug 2007

Change1

1,434.5

1,841.7

407.2 (+28.4%)

606.2

775.1

168.9 (+27.9%)

704.6

932.1

227.5 (+32.3%)

72.1

103.8

31.7 (+44.0%)

3.4

5.0

1.4 (+41.2%)

1.7

2.1

0.4 (+23.5%)

Average daily trade value 1. Change from the end of previous year

9.2 Exchange rate The won/dollar exchange rate rose to the 938 won range affected by increased demand for safer assets in the global market and net selling by foreign investors in the domestic stock market.

As increased risk aversion by investors amid the subprime crisis led to strong dollar, the won/dollar exchange rate was up to a five-month high of the 950 won range on August 17.

After mid August, however, the exchange rate declined to close the month at the 938 range with a large influx of dollars paid for domestic exports and a recovery in global stock markets after major economies’ stepping in for market stabilization.

The won/yen exchange rate rose considerably as the yen gained momentum with the possible unwinding of yen carry trades from investors’ growing appetite for safer assets in the global market.

(End-period) 2005

2006

2007

Dec

Dec

May

Jun

Jul

Aug

Change1

Won/Dollar

1,011.6

929.8

927.7

923.8

919.3

938.3

-0.9

Yen/Dollar

117.8

118.7

121.5

123.3

118.9

116.2

2.2

1. Appreciation from the end of previous year (%); the exchange rate is based on closing price at 3:00 p.m.

24

September 2007

9-1

Stock prices

9-2

Foreign exchange rate (month-end)

9-3

Recent foreign exchange rate

Economic Bulletin

25

9.3 Bond market Bond yields such as Treasury bond yields rose in early August mainly affected by the interest rate raise by the Bank of Korea.

The yields turned to a decline in the middle of August due mainly to credit crunch worries related to the US subprime woes and a consequent fall in global stock markets. They, however, rebounded toward the end of the month with narrowed spreads between longterm and short-term interest rates, robustness in economic indicators released at endmonth, and eased concerns over credit tightening.

(End-period)

Call rate (1 day)

2004

2005

2006

2007

Dec

Dec

Sep

Apr

May

Jun

Jul

Aug

Change1

3.29

3.76

4.60

4.88

4.55

4.52

4.76

4.98

+38

CD (91 day)

3.43

4.09

4.86

5.00

5.06

5.00

5.10

5.29

+43

Treasury bonds (3 yr)

3.28

5.08

4.92

5.05

5.17

5.26

5.22

5.43

+51

Corporate bonds (3 yr)

3.72

5.52

5.29

5.44

5.55

5.66

5.64

5.85

+56

Treasury bonds (5 yr)

3.39

5.36

5.00

5.06

5.21

5.38

5.28

5.47

+47

1. Basis point change from end December 2006

9.4 Money supply & money market The M2 growth in July accelerated compared to the previous month, due to reduced money redemption in the overseas sector as well as continued money supply through the government sector. The M1 growth, however, decelerated as short-term demand accounts decreased with surtax payments.

(Percentage change from same period in previous year, average) 2005

2006

2007

Annual

Annual

Q1

Q2

Q3

Q4

Q1

Q2

M13

8.5

-0.8

-0.6

-2.8

-5.5

5.9

6.1

M2

6.9

8.3

7.0

7.2

8.1

10.9

11.5

Lf 4

7.0

7.9

7.2

7.4

7.5

9.2

10.0

Lower 10

2007 Jun2

Jun

Jul

-6.7

-7.5

Around-8

302.5

11.0

10.9

Lower 11

1,189.5

10.45

Mid10

1,596.4

1

1. Estimate 2. Amount, trillion won 3. Excludes corporate MMF and individual MMF from November 21, 2005 and March 22, 2007, respectively, as they are redeemable on and after the next business day following the transaction date from those periods each.

4. Liquidity aggregates of financial institutions (mostly identical with M3) 5. Preliminary

In July, growth in bank deposits dropped considerably as instant access accounts fell with money withdrawal for settlement and surtax payments by companies while money from time deposits flowed into the domestic stock market.

Despite more money inflow into equity funds, the increase in asset management company (AMC) receipts slowed significantly as money market funds (MMFs) and hybrid funds attracted less money affected by value-added tax payments and redemption of funds by some banks.

(Monthly change, end-period, trillion won) 2006

2007

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Bank deposits

14.6

-7.3

5.1

23.3

-5.5

6.2

10.9

2.0

6.9

13.3

-8.1

AMC receipts

4.0

5.8

4.7

-0.8

3.4

0.4

3.4

-4.8

7.6

13.6

3.9

26

September 2007

9-4

Interest rates Source: The Bank of Korea

9-5

Total money supply Source: The Bank of Korea

9-6

Share of deposits by financial sector (M3 as of year-end) Source: The Bank of Korea * Retail finance: Mutual savings banks & National Credit Union Federation of Korea, Others: Investment banks, post office savings, etc.

Economic Bulletin

27

10. Balance of payments Despite a rise in the service account deficit, Korea’s current account surplus in July expanded its growing momentum by posting US$1.67 billion, up from US$1.27 billion in the previous month. The accumulated current account during the January-July period of the year recorded a surplus of around US$8 million.

The goods account surplus registered US$3.13 billion, a similar level to US$3.21 billion of the previous month, on the back of strong performance of major export items such as automobiles and IT products despite increased imports of consumer goods and raw materials.

The service account deficit expanded to US$1.69 billion from US$1.52 billion of the previous month as the travel account deficit increased with seasonal factors while the transportation account surplus decreased.

The income account in July reversed course from a balance in June to a surplus of US$530 million, as overseas dividend payments decreased while overseas interest income increased.

(US$ billion) 2006

Current account

2007

May

Jun

Jul

Jan-Jul

May

Jun

Jul

Jan-Jul

1.36

0.94

-0.39

-0.82

0.84

1.27

1.64

0.01

- Goods balance

2.82

2.71

1.62

14.26

2.24

3.21

3.13

16.14

- Service balance

-1.35

-1.18

-1.74

-10.62

-1.48

-1.52

-1.69

-12.26

- Income balance

0.39

-0.16

0.04

-2.09

0.46

0.0

0.53

-1.70

The capital and financial account balance realized a net inflow of US$540 million in July as the other investment account posted a surplus of US$7.69 billion led by short-term borrowings from overseas by deposit money banks, although the portfolio investment account saw a net outflow of US$6.93 billion due to increased overseas stock investment by locals.

Capital & financial account balance (US$ billion) -0.40 (Feb 2007)

3.64 (Mar)

4.20 (Apr)

3.04 (May)

-1.36 (Jun)

0.54 (Jul)

Despite an increase in the service account deficit such as the travel account deficit, the current account in August is expected to remain on the surplus side mainly led by an increase of export-import gap on customs clearance basis from US$1.12 billion in July to US$1.54 billion in August.

28

September 2007

10-1 Current account balance Source: The Bank of Korea (balance of payments trend)

10-2 Travel balance Source: The Bank of Korea (balance of payments trend)

10-3 Capital & financial account balance Source: The Bank of Korea (balance of payments trend)

Economic Bulletin

29

11. Prices and international commodity prices 11.1 Prices Consumer prices in August continued to stabilize, rising mere 0.1 percent from a month earlier and 2.0 percent from a year earlier.

Consumer price inflation 2006

2007

Aug

Apr

May

Jun

Jul

Aug

Month-on-Month (%)

0.6

0.4

0.1

0.0

0.4

0.1

Year-on-Year (%)

2.7

2.5

2.3

2.5

2.5

2.0

Price increases of agricultural, livestock and fishery products in August decelerated to 0.2 percent from 1.8 percent in July when goods were damaged due to seasonal reasons such as rain. When compared to last year, the prices fell 2.6 percent since weather conditions were better compared to the same month of the previous year.

Prices of oil products also showed stability, falling 0.4 percent month-on-month and rising 0.1 percent year-on-year, with slowed oil prices and relatively high base set in the same month of the previous year.

Public utility charges in August were little affected by the increase in public transpiration fees including city bus and trains as it had already been reflected before July.

Housing rents, however, were gradually accelerating as a rise in real estate prices has been reflected with the time lag.

Consumer price inflation in major sectors

(Percentage change from same period in previous year)

Total

Agricultural, livestock & fishery products

Industrial products

Oil products

Housing rents

Public utility

Personal services

Month-on-Month (%) (Contribution ratio, %p)

0.1 -

0.2 (0.02)

0.2 (0.06)

-0.4 (-0.02)

0.0 (0.00)

0.2 (0.02)

0.1 (0.03)

Year-on-Year (%) (Contribution ratio, %p)

2.0 -

-2.6 (-0.23)

1.4 (0.42)

0.1 (0.01)

3.1 (0.51)

2.0 (0.19)

3.2 (1.10)

Core inflation was up 2.3 percent from a year earlier in July. Consumer prices for basic necessities, a barometer of perceived consumer prices, rose 2.4 percent year-on-year.

(Percentage change from same period in previous year) 2006

2007

Aug

Apr

May

Jun

Jul

Aug

Core inflation

2.1

2.6

2.2

2.3

2.3

2.3

Consumer prices for basic necessities

3.8

2.9

3.1

3.2

3.3

2.4

Consumer prices in September are forecast to increase at a faster pace compared to August as prices of agricultural, livestock and fishery products may go up due to increased demand in preparation for Chuseok (Korean Thanksgiving) holidays and city gas fees is likely to rise.

Nonetheless, they are expected to maintain the stable mid-2 percent level year-on-year.

30

September 2007

11-1 Prices Source: Korea National Statistical Office (consumer prices, core inflation) & The Bank of Korea (producer prices)

11-2 Consumer price inflation Source: Korea National Statistical Office (consumer price trend)

11-3 Contribution to consumer price inflation Source: Korea National Statistical Office (consumer price trend)

Economic Bulletin

31

11.2. International oil and commodity prices International oil prices fell in August affected by weakened inflow of speculative funds and the expected decrease in demand from economic slowdown in the US. International oil prices in August are most likely to be influenced by the outcome of OPEC’s general meeting scheduled to be held in Vienna on September 11. Changes in oil reserves and possible hurricanes in the US are also major factors affecting the prices.

(US$/barrel, period average) 2005

2006

2007

Annual

Annual

Mar

Apr

May

Jun

Jul

Aug

Dubai crude

49.4

61.6

58.9

64.0

64.7

65.9

69.7

67.4

Brent crude

54.3

65.1

62.3

67.6

67.4

71.8

77.5

71.2

WTI crude

56.5

66.0

60.6

63.9

63.4

67.5

74.1

72.4

Record high oil prices (spot prices, US$/barrel) Dubai crude: 72.2 (Aug 2006)

Brent crude: 79.6 (Jul 2007)

WTI crude: 78.2 (Jul 2007)

The price of gasoline in the domestic market was down in line with lower international gasoline prices. Prices of diesel, however, were up reflecting a domestic tax rate hike.

(Won/liter, period average) 2005

2006

Annual

Annual

Mar

Apr

May

Jun

Jul

Aug

Gasoline prices

1,365

1,543

1,456

1,505

1,535

1,551

1,551

1,549

Diesel prices

1,080

1,295

1,186

1,215

1,237

1,249

1,256

1,290

2007

Source: Korea National Oil Corporation

As for international commodity prices, overall prices of non-ferrous metals declined, while prices of grain such as wheat and coffee beans remained high.

Prices of most non-ferrous metals including electrolytic copper, nickel, aluminum and zinc decreased due mainly to credit crunch concerns from the US subprime mortgage crisis.

Among grain, the price of wheat climbed with expected weak harvest caused by drought in major producing countries such as Australia and Canada. Soybean prices, however, fell as drought in the US, a major producer, was relieved.

Price increases in Aug 2007 (m-o-m, %) Tin (2.7), wheat (13.3), corn (1.4), coffee bean (6.4)

Price decreases in Aug 2007 (m-o-m, %) Nickel (-16.3), electrolytic copper (-6.2), aluminum (-7.7), soybean (-2.5)

Reuters index*

(Period average)

2005

2006

2007

Annual

Annual

Mar

Apr

May

Jun

Jul

Aug

1,680

2,019

2,266

2,296

2,311

2,374

2,449

2,486

* A weighted average index of 17 major commodities

32

September 2007

11-4 International oil prices Source: Korea National Oil Corporation

11-5 International oil prices (Dubai crude) and import prices Source: Korea National Oil Corporation & Korea Customs Service

11-6 International commodity prices Source: Bloomberg (CRB) & The Bank of Korea (Reuters index) * CRB demonstrates futures price index of 21 commodities listed on the US Commodity Transaction Market, including beans and other crops, crude oil and jewelry.

Economic Bulletin

33

12. Real estate market 12.1 Housing market Apartment prices in August increased by a mere 0.1 percent from the previous month after increasing 0.2 percent in July.

Nationwide apartment sales prices 2004

2005

Annual Annual Annual

Nationwide

-0.6

Seoul Gangnam2 Gyeonggi

(Percentage change from previous period)

2006

2007 Feb

Mar

Apr

May

Jun

Jul

Aug 61 Aug 131 Aug 201 Aug 271

0.3

0.1

0.0

-0.1

0.1

0.2

0.09

5.9

13.8

0.01

0.02

0.02

-1.0

9.1

24.1

0.3

0.2

0.0

-0.2

0.1

0.3

0.15

0.03

0.05

0.05

-1.3

13.5

27.6

0.1

0.0

-0.3

-0.4

-0.1

0.1

0.07

0.04

0.01

0.03

-3.7

7.6

28.4

0.5

0.2

0.0

-0.2

0.0

0.2

0.16

0.02

0.04

0.02

1. Weekly trends 2. Upscale area of southern Seoul Source: Kookmin Bank

Average apartment rental prices throughout the nation, in the Seoul metropolitan area as well as in Seoul stayed at a similar level to the previous month.

Nationwide apartment rental prices 2004

2005

(Percentage change from previous period)

2006

Annual Annual Annual

2007 Feb

Mar

Apr

May

Jun

Jul

Aug 61 Aug 131 Aug 201 Aug 271

0.3

0.4

0.3

-0.1

-0.1

0.0

-0.01

-0.02

Nationwide

-2.7

5.7

7.6

0.01

0.02

Seoul

-4.4

6.2

11.5

0.4

0.6

0.4

-0.1

0.0

0.1

-0.01

-0.02

0.01

0.04

Gangnam2

-5.2

8.6

11.3

0.4

0.3

0.2

-0.2

-0.2

0.0

0.03

0.02

0.03

0.03

Gyeonggi

-5.5

10.6

12.4

0.4

0.6

0.3

-0.3

-0.2

-0.1

-0.05

0.07

-0.01

-0.07

1. Weekly trends 2. Upscale area of southern Seoul Source: Kookmin Bank

Apartment sales transactions in July edged up from the previous month.

Apartment sales transactions 2004

2005

Annual Annual 64

34

(Monthly average, thousand)

79

September 2007

2006

2007

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

68

60

100

110

152

116

86

63

70

70

67

61

67

12-1 Real estate prices Source: Kookmin Bank (national housing price trend)

12-2 Weekly apartment sales prices and monthly transaction volume Source: Kookmin Bank (weekly APT price trend) & Korea Land Corporation (monthly land trade trend)

12-3 Apartment prices by region Source: Kookmin Bank (national housing price trend)

Economic Bulletin

35

12.2 Land market Nationwide land prices in July rose 0.29 percent from the previous month.

The rate of change in nationwide land prices in July remained stable in general as demand for land decreased due to a heavier tax burden with imposing real estate capital gains tax based on actual transaction prices.

However, land prices in Seoul (up 0.4%) and Incheon (up 0.39%) posted the highest growth.

For Seoul, land price increases were fueled mainly by the advancement of urban redevelopment projects such as “New Town� construction projects. Land prices in the Incheon area were boosted by expectations over increased development activities with the development of the Incheon free economic zone, the on-going second phase of Incheon International Airport construction, the planned establishment of international tourism complex and the successful bidding for the 2014 Asian Games.

Land prices by region

(Percentage change from previous period)

2004

2006

2005

Annual Annual

2007

Q3

Q4

Annual

Q1

Q2

Q3

Q4

Dec

May

Jun

Jul

Nationwide

3.86

4.98

1.13

1.11

5.61

1.31

1.43

1.25

1.5

0.49

0.26

0.27

0.29

Seoul

4.09

6.56

1.44

1.59

9.17

1.78

2.37

2.19

2.5

0.81

0.34

0.37

0.40

Gyeonggi

6.12

5.69

1.41

0.81

5.07

1.12

1.29

1.05

0.5

0.49

0.30

0.29

0.36

S. Chungcheong

11.65

8.32

1.28

2.12

5.54

2.77

1.31

0.69

0.67

0.24

0.13

0.13

0.13

Nationwide land transactions in July inched up from the previous month as well as from a year earlier.

Land sales transactions 2004

(Monthly average, thousand) 2005

Annual Annual

2006

2007

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Apr

May

Jun

Jul

Nationwide

218

248

231

249

211

182

178

236

239

330

372

203

216

191

195

Gyeonggi

52

56

55

66

52

45

46

66

71

102

100

45

49

45

48

N. Chungcheong

8

11

8

9

9

8

7

8

7

10

13

8

10

8

7

S. Chungcheong

20

17

14

15

12

8

8

10

9

12

15

12

12

10

9

36

September 2007

12-4 Land and consumer prices since 1970s Source: Korea Land Corporation (land prices) & Korea National Statistical Office (consumer prices)

12-5 Land prices by region Source: Korea Land Corporation (land price trend)

12-6 Land trade volume Source: Korea Land Corporation (land trade trend)

Economic Bulletin

37

13. Composite indexes of business cycle indicators The cyclical indicator of coincident composite index, a barometer of current economic conditions, rose 0.5 percentage points from a month earlier in July, due to increases in all components of index including the industrial production index (up 1.7%), the value of construction completed (up 1.5%) and the domestic shipment index (up 1.0%).

Cyclical indicator of coincident composite index (m-o-m, p) -0.2 (Jan 2007)

0.1 (Feb)

-0.2 (Mar)

0.1 (Apr)

-0.1 (May)

0.4 (Jun)

0.5 (Jul)

The on-year leading composite index in July, which foresees the future economic conditions, expanded 0.4 percentage points from the previous month, led by increases in the KOSPI (up 8.7%) and the value of machinery order placed (up 8.3%) although the value of construction orders received decreased (down 8.7%).

12 month smoothed change in leading composite index (m-o-m, %p) 0.0 (Jan 2007)

0.2 (Feb)

-0.1 (Mar)

0.3 (Apr)

0.0 (May)

2006

Coincident composite index (m-o-m, %) Cyclical indicator of coincident composite index (m-o-m, p)

0.5(Jun)

0.4(Jul)

2007

Dec

Jan

Feb

Mar

Apr

May

Jun1

Jul1

0.2

0.2

0.5

0.3

0.5

0.3

0.8

0.9

100.8

100.6

100.7

100.5

100.6

100.5

100.9

101.4

-0.2

-0.2

0.1

-0.2

0.1

-0.1

0.4

0.5

Leading composite index (m-o-m, %)

0.4

0.3

0.6

0.2

0.7

0.4

0.9

0.6

12 month smoothed change in leading composite index (%)

4.7

4.7

4.9

4.8

5.1

5.1

5.6

6.0

-0.1

0.0

0.2

-0.1

0.3

0.0

0.5

0.4

(m-o-m, %p) 1. Preliminary

38

September 2007

13-1 Cyclical indicator of coincident composite index Source: Korea National Statistical Office

13-2 Leading composite index Source: Korea National Statistical Office

13-3 Coincident and leading composite indexes Source: Korea National Statistical Office

Economic Bulletin

39

Policy Issues 2007 Tax Revision: Aiming at a Simple, Fair, and Pro-Growth Tax System

The government announced a proposed bill on a revised taxation on August 22, 2007. The revision is aimed to establish a simple, fair, and pro-growth tax system. The following is the gist of the revision.

I . Supporting expansion of future growth engines 1. Allowing temporary tax incentives for investments in Gaeseong Industrial Complex (Art. 23-2, Enforcement Decree on Special Tax Treatment Control Law) In order to encourage investments in the Gaeseong Industrial Complex (GIC), the Korean government will expand the temporary tax credit and special tax incentives to small and medium-sized enterprises (SMEs) investing in the GIC. Currently, for facility investment made by a corporation in 29 industries such as the manufacturing industry, 7 percent of the investment amount is deducted from corporate tax and income tax, provided the investment is made within the country. From next year, investments in GIC will be regarded as domestic investments, so that they are eligible for temporary investment tax credit.

Also, regarding special tax incentives on SMEs, only SMEs whose manufacturing facilities are located within the country are considered as corporations that subcontract to other manufacturers for production and are eligible for the special tax incentives for SMEs. But from next year, manufacturers that have operating plants in GIC are eligible for the tax incentives.

These incentives shall take effect on investments that are established on or after January 1, 2008.

40

September 2007

2. Easing requirements for tax exemption for venture start-ups (Art. 6, STTCL) As part of the expanding support for venture companies and SMEs, the requirements for tax exemption for venture start-ups will be eased.

To be certified as a venture company eligible for tax exemption, a company must invest at least 50 million won and more than 10 percent of its total capital for a period of longer than 6 consecutive months, which is a tough hurdle for start-up companies. Given the reality, the period until a company can be verified as a venture company will be extended from two years to three years. The relaxed requirement will come into effect for companies to be specified as venture companies on or after January 1, 2008.

Current

Revised

Income tax or corporate tax for a venture capital SME is

Requirements are eased to include venture capital SMEs

reduced by 50% for the first four years including the year

certified within 3 years after the establishment.

during which such income accrues for the first time.

(Eligibility requirements) - New SMEs established in areas other than the Seoul metropolitan area or its adjacent areas - New businesses operating vocational training institutes - SMEs certified by authorities concerned within 2 years after the establishment (Industries) 21 industries including manufacturing, mining, valueadded network (VAN)

II . Expanding tax base by enhancing transparency of tax sources 1. Streamlining tax benefits set to sunset by the end of year 2007 A total of 22 tax exemptions and tax reductions are under the sunset restrictions until the end of this year. Among them, 10 will be abolished, 4 will be streamlined and 8 will be extended.

<Tax benefits to be extended> Tax benefits

Purpose

a. Exempting corporate tax on capital gains from stock

To facilitate start-up of businesses and investment in

transfer by institutional investors

venture capitals

Corporate tax shall be exempt on capital gains earned from stock acquisition by institutional investors via investing in start-ups, venture capital companies, and companies subject to restructuring in the form of/with the help of investment corporations

Economic Bulletin

41

Tax benefits b. Reducing gift tax on funds for establishing businesses If an individual establishes a company with the funds of

Purpose To boost economic vitality by encouraging early transfer of wealth

no more than 3 billion Korean won given by parents, a low rate of 10% shall be imposed and the tax amount is to be settled with inheritance tax c. Tax incentives on transfer of overlapping assets

To encourage investment among businesses

If overlapping assets created by mergers or spin-offs are divested within one year after the registration of the merger, and if substitute assets are purchased with the money earned by the divestiture, capital gain equivalent to the acquisition of the substitute asset shall be withheld for the corporate tax for three years and then the tax amount shall be paid after three years with a three year installment plan. d. Deferring tax on the establishment of financial holding

To support restructuring of financial institutions

companies Tax is deferred on capital gains earned by shareholders of financial institutions via transferring their stocks to or exchanging them with those of financial holding companies. e. Exempting VAT tax on businesses operating privately-

To improve educational environment through private funds

funded facilities of private colleges Goods or services provided by an entity recommended by the Minister of Education with school facilities (e.g. dormitory) established through a Build-Transfer-Operate (BTO) project are exempt from VAT. f. Exempting VAT tax on gold bullion transactions Gold bullion provided as raw materials for jewelry,

To prevent smuggling and enhance transparency in gold bullion transactions

granted as a gift by financial institutions, or traded for the purpose of loan for consumption are exempt from VAT.

2. Improving tax system to prevent tax evasion Clarifying the principle of real taxation for preventing tax evasion (Art 14-3, Basic Law for National Taxes) In order to ensure that not only international transactions but also domestic transactions are subject to the provision of preventing tax evasion, the relevant provision in the International Tax Coordination Law will be adopted into the Basic Law for National Taxes. The revision will come into effect from January 1, 2008.

42

September 2007

Current

Revised

(Principle of real taxation)

(Clarifying the principle of real taxation)

a. An entity to whom income, profit, equity, economic

Items a and b remain unchanged.

activities or transactions are vested holds the tax liability

c. If an entity is deemed to unfairly pursue reduction in its tax obligation through third-party trading* (roundabout

b. Regardless of titles or forms of income, profit, equity, economic activities or transactions, the tax liability is adjusted based on the nature of the objects.

trading) or indirect trading**, the transaction will be recognized as a direct trading or a series of activities or transaction based on its economic nature. * Third-party trading: barter contracts to evade the transfer income tax or abnormal derivatives dealings to evade corporation tax ** Third-party trading more than one time

III . Supporting the follow-up measures for KORUS FTA 1. Revising the special consumption tax rates on automobiles (Art 1-2, 3 Special Consumption Tax) As a follow-up measure for KORUS FTA, the special consumption tax rates on automobiles with engine displacement greater than 2,000 cc have been lowered to 5 percent. The adjusted tax rate will be applied from the same date of the effectuation of KORUS FTA.

Current (Special consumption tax rates on automobiles) a. Automobiles with engine displacement in excess of 2,000 cc: 10%

Revised a. Automobiles with engine displacement in excess of 2,000 cc: 5% (8% in the first year, additional 1% cut per year for three

b. Automobiles with engine displacement less than 2,000 cc:

years)

5%

2. Improving the customs clearance system to further protect intellectual property rights (1) Introducing the system of customs declaration and the system of allowing withholding of customs clearance to IPR (Art. 235, Customs Law) As of now, unlike trademark rights, intellectual property rights holders are only allowed to request the suspension of customs clearance. On the contrary, the protections given only to trademark rights are; the prohibition on export & import; customs declaration; notifying of export or import of goods infringing on the trademark right to the party who has registered the trademark right; and suspension of customs clearance for the goods deemed as infringing on the trademark.

To protect items such as domestic character goods as a part of the KORUS FTA agreement, the government will introduce a system of customs declaration of intellectual property rights

Economic Bulletin

43

and a system that grants the party holding the right the authority to suspend customs clearance. The 2007 tax revision applies the same level of protection to intellectual property rights as trademark rights.

The revision will be adjusted to all items exported or imported after April 1, 2008.

(2) Prohibiting customs clearance of goods violating IPRs (Art. 235-5, Customs Law) Current

Revised

Customs clearance is granted for the goods violating

Maintain the current system however reject clearance in

intellectual property rights on the condition that the party

the following cases:

declaring import provided guarantee on the clearance-

- Goods containing counterfeited or infringed trademarks

suspended goods.

- Pirated copies infringing copyrights

As agreed under KORUS FTA, the application of the provision will be expanded to all imported and exported goods in line with the trend to strengthen protection for international intellectual property rights and copyrights.

The revision shall be applied to goods imported/exported after April 1, 2008.

3. Opening up the tax services market (Art. 4-3, Tax Accountant Law) As a follow-up measure for KORUS FTA, the government will establish new legal ground for opening up the tax services market.

Currently, the market for tax accountant services is closed to foreign tax accountants unless they are licensed domestically. Now that the market for tax accountant services is to be opened in light of the conclusion of KORUS FTA, tax accountants of foreign nationality will be permitted to set up domestic offices and provide consulting services on foreign tax laws and systems.

This revised rule shall be applied from the effectuation date of the KORUS FTA.

4. Industry-specific assistance measures (1) Providing tax reductions for trade adjusted companies that convert businesses (Art. 33 & 33-2, STTCL) Trade adjusted companies are companies that are expected to be adversely affected or have been already due to increased imports since the implementation of FTA. Specifically, they are companies whose sales or production decreased by more than 25 percent in June 2007, which is the month when the implementation actually took effect.

To support trade adjusted companies to close their marginal businesses and convert to more competitive businesses, the government will provide tax assistance according to the law on trade adjustment assistance for manufacturing and other industries revised in April 2007.

44

September 2007

In the case when a trade adjusted company switches industries, 50 percent tax reduction will be provided for a period up to 4 years from the starting date of business conversion.

In addition, when a trade adjusted company transfers business assets into funds to be used in the new industry, the corporation tax on the capital gains will be withheld for 3 years and thereafter, it can be paid using the 3-year installment plan while the transfer income tax for residents will be reduced by 50 percent.

The new tax assistance shall be applied from the tax year starting January 1, 2008.

(2) Promoting agricultural scale and competitiveness by strengthening the lease functions of the agricultural land management company (Art. 168-8, Enforcement Ordinance on the Income Tax Law) As included in the Domestic Compensation Measures in Light of the Conclusion of KORUS FTA, the government will strengthen the lease functions of agricultural land management company to revitalize the lease and trust business of the agricultural land management company, thereby boosting agricultural scale and competitiveness and also promoting transparency of agricultural lease agreements.

The relaxed rule shall be applied to leases occurring after January 1, 2008.

Current

Revised

When a landowner does not live in close proximity to the

Land satisfying the following rule will be added to the list

owned agricultural land or does not farm in the land, the

excluded from the non-business land

land is excluded from the non-business land when:

- Land kept in trust of the agricultural land management

- Ownership is recognized according to the agricultural laws - Owned by a family clan (not by an individual) - Cannot be farmed due to unavoidable circumstances

company for more than 8 years (Benefit) - Transfer tax rate will be reduced from 60% to 9-36%

(Heavy transfer tax system on non-business land) - Land that is not used for business purposes for over a certain period of time during the ownership period is classified as non-business land on principle.

- Transfer tax of 60% is levied and the owner will be exempted from long-term ownership special deduction.

(3) Providing tax deduction on facility investment used for quality management of pharmaceuticals (Art. 25-3, Special Tax Treatment Control Law) The GMP (Good Manufacturing Practice) standard governs the entire production and quality control process for high-quality pharmaceuticals. This includes the organization of the manufacturing site, hardware, procurement of raw materials, manufacturing, packaging and product release (enforcement regulation for the pharmaceutical affairs law Annex 4).

With a view to maximize the benefits of market opening in light of the KORUS FTA, the government needs to upgrade domestic quality control systems for pharmaceuticals to the level of advanced countries. Therefore, the government revised the relevant law to allow tax Economic Bulletin

45

deduction for investment in GMP facilities in order to encourage early establishment of advanced GMP operations. Specifically, investment in facilities for the satisfaction of GMP standards for quality control will be tax deductible up to 70 percent of investment with sunset of December 31, 2010.

The tax assistance will be applied to investments made after January 1, 2008.

5. Supplementing the tax systems on international transactions (1) Improving the tax system on non-resident entertainers’ income (Art. 156-5, Income Tax Law, new law) To prevent tax avoidance making use of the tax treaties, the government improved the tax system on non-resident entertainers’ income.

The improved tax system will be applied to services rendered after January 1, 2008 Current Under the tax treaty with the US, when entertainers hold live performances in Korea and the income receiver is an individual, tax withholding is possible when the income exceeds US$3,000. However, tax withholding is not possible when the income receiver is a corporation.

One exception to the rule is when a foreign corporate pays an entertainer, 20% withholding is applied. However, as this is out of the boundary of the right to tax, it is practically impossible to enforce.

This is in contrast with other tax treaties where 20% withholding tax is applicable even in the case when the income receiver is a corporate.

Revised (Tax withholding) When tax exempted foreign entertainment and sports company is paid for services rendered by entertainers and/or athletes, 20% withholding is applied despite the tax exemption stated in tax treaties.

Tax exempted foreign entertainment and sports company is a company organizing entertainers’ and/or athletes’ events etc., without having a fixed place of business domestically and therefore being tax exempted under tax treaties.

(Adjustment) Tax exempted foreign entertainment and sports company can request a tax adjustment to the domestic tax authority by submitting statements of payment to entertainers. The National Tax Service on review of submitted documents will refund excess tax withheld.

(2) Adjusting the insufficient capital tax system for the financial services industry (Art. 26, Enforcement Ordinance on the Law for the Coordination of International Tax Affairs) The 3-times rule for expense deduction will be applied across all industries including the financial services industry to achieve consistency.

The revised rule will be applied to the fiscal year starting after January 1, 2008.

46

September 2007

Current

Revised

Currently, interest on foreign financial institutionsâ&#x20AC;&#x2122;

The 3-times rule for expense deduction will be applied

borrowings from headquarters is not deducted as

consistently across all industries.

expenses when it exceeds 6 times the subsidiaryâ&#x20AC;&#x2122;s capital according to the following formula.

Interest X

Total borrowings - 6 times capital Total borrowings

Currently, interest equivalent to or less than 6 times capital is recognized and deducted as corporate expenses for the financial services industry, while interest equivalent to or less than 3 times capital is recognized and deducted for non-financial services industries.

Economic Bulletin

47

Economic News Briefing

GDP growth in Q2 upwardly revised to 1.8% (preliminary) Korea’s real GDP in the second quarter expanded 1.8 percent from the previous quarter, an upward revision from the earlier estimate of 1.7 percent, on the backs of robust manufacturing sector and strong exports. It was the strongest quarterly growth since the fourth quarter of 2003 when GDP increased 2.7 percent on quarter. Compared to the same quarter last year, the second-quarter GDP rose by a revised 5 percent, up from the earlier estimate of 4.9 percent.

The favorable growth trend is in line with the assessment on the economy made by the Ministry of Finance and Economy. The Vice Minister of Finance and Economy Kim Seok-dong on September 6 reiterated confidence in the Korean economy stating that the country’s economic recovery is expanding as exports increase at a solid pace and domestic demand improves. In mid-July, the government raised its economic growth forecast for this year to 4.6 percent, citing a faster-than-expected recovery in corporate capital spending and solid exports.

Major global investment banks have also voiced optimism about Korea’s economy raising their average growth forecast for the economy next year by 0.1 percentage point to 5 percent in August from two months earlier. For this year, eight investment banks, BNP Paribas, Goldman Sachs, JP Morgan, Lehman Brothers, Morgan Stanley, Citigroup, UBS, and Merrill Lynch forecast growth of 4.6 percent for the economy, up from 4.5 percent. French bank BNP Paribas gave the highest forecast of 5.5 percent for Korea next year, followed by Goldman Sachs and Citigroup, which gave 5.3 percent and 5.2 percent growth projections, respectively.

48

September 2007

GDP by production and expenditure*

(Percentage change from previous quarter)

2005

20061

20071

Annual

Annual

Q1

Q2

Q3

Q4

Q1

Q2

H1

4.2

5.0

1.0

0.8

1.2

0.9

0.9

1.8 (5.0)2

2.3

Agriculture, forestry and fishery

0.7

-2.6

-2.2

-0.7

-0.4

-0.6

1.8

0.7 (4.3)

1.9

Manufacturing

7.1

8.4

0.8

1.6

2.2

1.0

-0.9

3.6 (5.9)

1.4

Construction

-0.1

-0.1

-0.2

-1.4

3.6

0.6

1.4

-1.8 (3.3)

0.8

GDP

Services

3.4

4.2

1.1

0.7

0.9

1.2

1.2

1.3 (4.7)

2.4

Private consumption

3.6

4.2

1.2

0.6

0.9

1.0

1.5

0.8 (4.2)

2.4

Facility investment

5.7

7.6

-1.0

2.2

3.8

0.1

4.4

3.4 (11.9)

6.3

Construction investment

-0.2

-0.4

0.0

-0.9

2.0

1.9

0.8

-1.3 (3.2)

1.1

4

Goods exports

9.7

12.6

2.3

5.4

2.9

-0.5

2.7

5.2 (10.6)

5.0

Goods imports4

6.4

10.8

1.8

6.1

2.0

-2.1

4.5

6.5 (11.3)

6.7

3.4

4.1

0.8

0.7

1.6

1.1

1.5

1.0 (5.2)

2.5

3

Domestic demand

5

*At 2000 constant prices, seasonally adjusted 1. Preliminary 2. Figures in parenthesis refer to percentage change from a year earlier in original terms.

3. Wholesale & retail sales, hotels & restaurants, transportation & storage, communication services, financial & insurance services, real estate, business services, public administration, defense & social security, educational services, healthcare & social welfare services and other services are included.

4. FOB basis 5. Excluding inventory

The second inter-Korean summit to focus on economic cooperation The second inter-Korean summit will be held on October 2 through 4 in Pyongyang during which President Roh Moo-hyun and the North Korean leader Kim Jong-il will mainly discuss economic cooperation between two Koreas that will not only produce economic benefits but also serve as a locomotive for consolidating peace on the Korean peninsular. On the issue of inter-Korean economic ties, President Roh on September 5 called for switching the concept from ‘assistant’ to ‘trade and investment’, stressing that the formation of an interKorean economic community is the ultimate goal of the summit. The South-North summit, initially slated for August 28 to 30, was delayed to the later dates due to flood damages in North Korea.

Korea to expand tax benefits for foreign-invested companies The Korean government made decisions to extend its tax exemption period on large-scale foreign-invested companies in the country’s free economic zones to five years from the current three years.

In the 19th free economic zone meeting held on August 17, presided over by Deputy Prime Minister and Minister of Finance and Economy Kwon Okyu, the government announced measures including tax incentives to promote foreign investment in Korea. Once the tax exemption period expires, the companies will receive a 50-percent tax reduction for additional two years.

Economic Bulletin

49

Under the benefit extension, manufacturers must procure at least US$30 million in foreign investment to receive the benefit, while tourism businesses must procure at least US$20 million. For logistics companies, the minimum requirement has been set at US$10 million.

The government also plans to add research and development (R&D) businesses on the list of beneficiary for tax exemption and reduction in order to promote worldâ&#x20AC;&#x2122;s leading R&D centers in Korea.

Regarding imports of capital goods, foreign-invested companies in the zone will be exempt from value-added taxes for 3 years. At present, they only receive full exemption on customs duties.

Meanwhile, the government plans to select two to three more regions as new free economic zones within this year.

Korea to open carbon exchange market by year-end Korea plans to open a carbon exchange market by the end of the year that will allow the country to commercially trade greenhouse gases. This move is a part of the new initiative set in the meeting of the national energy commission to duly response to the global issue of climate change and to help cut back on carbon dioxide (CO2) emissions that have been blamed for causing global warming. The initiative calls for creating a venue that permits companies to buy and sell the so-called carbon emission credits and opens the door for local businesses to participate in the global Clean Development Mechanism (CDM).

Under this initiative, the government set up a 200 billion won â&#x20AC;&#x2DC;carbon fundâ&#x20AC;&#x2122; aimed at financing clean energy projects such as developing renewable energy. Among the key benefits expected from carbon funds are new economic incentives for greenhouse gas reduction businesses and the promotion of carbon market, which will mean more efficient pricing and lower long-term cost of carbon credits. In addition, carbon funds will provide investors with an opportunity to engage in pro-environment investing. The Korean financial regulatory authorities on September 7 proposed a legal amendment for making carbon credits to be eligible for indirect investment.

As of now, the size of the local CDM market is estimated at 13.92 million tons, equivalent to 149.8 billion won or US$158.3 million and it is forecast to expand to 448.7 billion won by 2012. The value of carbon markets worldwide has been growing at a robust pace, reaching approximately US$30 billion in 2006, a three-fold increase from the previous year, according to the World Bank.

50

September 2007

Seoul plans to spend big on knowledge-based industry The Ministry of Commerce, Industry and Energy on August 20 announced that it will invest 970 billion won (US$1.02 billion) in the next eight years in research and development (R&D) for the knowledge-based service industry to strengthen its competitiveness. The plan calls for concentrated support to foster 11 value-added business areas as the countryâ&#x20AC;&#x2122;s new growth engine. The 11 business areas include design work, business consulting, R&D industry, packaging, fashion, franchising, exhibition management, industrial testing, distribution, e-learning, and energy services. If the efforts bear fruit, this upper-end service industry could account for more than 30 percent of the gross domestic product and a third of the workforce by 2012. This is on par with levels currently enjoyed by advanced countries.

Chinese firm to open plant in Gaeseong According to the Korea Land Corporation (KLC), a Chinese company is going to be the first foreign enterprise to do business in the Gaeseong Industrial Complex. Dashing Diva, the Korean branch of Chinese artificial nail manufacturer Tianjin Jci Cosmetic, signed a contract to purchase a 6,000-square-meter lot in the inter-Korean industrial park in the North Korean border city. The KLC has designated a portion of land in Gaeseong for foreign businesses to boost the industrial complexâ&#x20AC;&#x2122;s international image, and this settlement marks as the first time that a foreign company has bought a site in the Gaeseong Industrial Complex.

Economic Bulletin

51

Statistical Appendices Tables & Figures 1. National accounts 2. Production, shipment and inventory 3. Production capacity and operation ratio 4. Consumer goods sales index 5. Consumer goods shipment index and consumer sentiment index 6. Machinery orders received, domestic machinery shipment, and estimated facility investment index 7. Value of construction completed and domestic construction orders received 8. Composite indexes of business cycle indicators and BSI 9. Balance of payments (I) 10. Balance of payments (II) 11. Prices 12. Employment and earnings 13. Financial indicators 14. Monetary indicators 15. Exchange rates

Economic Bulletin

53

1. National accounts (year-on-year change, %, 2000 constant prices) Real GDP Period Agri., fores. & fisheries

Manufacturing

Gross fixed capital formation

Final consumption expenditure

Construction

Facilities

2000

8.5

1.2

17.0

7.1

12.2

-0.8

33.6

2001

3.8

1.1

2.2

4.9

-0.2

6.0

-9.0

2002

7.0

-3.5

7.6

7.6

6.6

5.3

7.5

2003

3.1

-5.3

5.5

-0.3

4.0

7.9

-1.2

2004

4.7

9.2

11.1

0.4

2.1

1.1

3.8

2005

4.2

0.7

7.1

3.9

2.4

-0.2

5.7

2006P

5.0

-2.6

8.4

4.5

3.2

-0.4

7.6

I

6.5

6.7

5.2

9.4

7.7

11.0

3.3

II

7.0

-2.7

6.2

8.5

7.3

6.0

8.0

III

6.8

-3.2

7.4

7.3

2.4

-2.4

9.1

IV

7.5

-5.5

11.4

5.3

9.1

8.4

9.6

I

3.8

-3.3

5.8

1.2

4.7

7.7

2.3

II

2.2

0.5

3.3

-0.6

4.2

7.9

-0.4

III

2.3

-7.8

4.2

-1.0

2.7

7.7

-4.6

IV

4.1

-6.9

8.6

-0.9

4.3

8.3

-2.0

I

5.4

10.1

11.9

-0.4

2.4

4.9

-0.1

II

5.7

4.2

13.6

0.7

4.7

3.8

6.4

III

4.7

4.3

11.7

0.1

2.9

1.0

6.8

IV

3.3

13.3

7.7

1.3

-1.1

-3.3

2.4

I

2.9

-0.1

5.4

2.0

0.5

-3.3

3.8

II

3.4

3.1

5.1

3.9

2.1

1.1

3.1

III

4.8

1.9

7.5

4.8

2.2

-0.1

5.0

IV

5.5

-0.5

10.1

4.9

4.3

0.4

10.8

2006P I

6.3

0.9

9.9

5.2

3.5

0.2

7.0

II

5.1

-3.3

9.3

4.3

0.1

-5.0

7.2

III

4.8

-4.7

9.0

4.3

4.6

-0.1

11.1

IV

4.0

-2.0

5.7

4.3

4.5

3.2

5.3

2007P I

4.0

4.0

3.8

4.3

7.0

3.9

10.8

II

5.0

4.3

5.9

4.5

6.7

3.2

11.9

2002

2003

2004

2005

P: Preliminary Source: The Bank of Korea

54

September 2007

Growth rate by economic activity

Growth rate by expenditure on GDP

Economic Bulletin

55

2. Production, shipment and inventory See graphs 6-1, 6-3, 7-1, 7-2 & 7-3 (constant prices, 2000 = 100)

Production index

Period

Y-o-Y change (%)

Shipment index

Y-o-Y change (%)

Inventory index

Y-o-Y change (%)

Service production index

Y-o-Y change (%)

2004

126.2

10.2

124.7

9.1

121.2

9.3

118.3

0.7

2005

134.1

6.3

131.7

5.6

124.1

2.4

122.6

3.6

2006

147.6

10.1

142.0

7.8

131.8

6.2

129.0

5.2

I

143.4

12.8

137.8

9.7

132.4

3.8

124.1

6.2

II

146.7

11.5

141.6

9.0

133.6

7.5

129.0

5.4

III

145.2

11.3

139.8

9.2

130.8

6.5

128.5

4.5

IV

155.0

5.2

148.6

3.8

131.8

6.2

134.5

4.8

I

148.2

3.3

143.9

4.4

140.0

5.7

131.1

5.6

IIP

157.1

7.1

151.8

7.2

137.3

2.8

137.2

6.4

2006 1

142.1

7.7

135.2

5.3

128.1

-0.4

124.1

7.7

2

136.7

21.4

132.2

17.5

130.2

2.3

118.1

6.0

3

151.4

10.7

146.0

7.5

132.4

3.8

130.2

5.3

4

145.1

10.7

140.1

8.4

132.5

3.7

128.5

6.6

5

148.5

12.6

142.8

10.4

134.7

5.2

130.2

6.5

6

146.5

11.2

141.9

8.3

133.6

7.5

128.2

4.3

7

137.4

4.9

130.5

1.8

135.8

7.2

124.9

2.8

8

142.6

11.7

138.5

9.7

131.7

7.3

128.0

5.5

9

155.7

17.6

150.5

16.2

130.8

6.5

132.5

6.9

10

151.6

5.5

144.4

2.9

131.6

7.3

129.0

4.5

11

160.8

7.1

154.1

5.3

131.3

7.1

132.5

5.7

12

152.7

3.0

147.2

3.0

131.8

6.2

141.9

5.4

2007 1

152.7

7.5

144.6

7.0

142.1

10.9

130.3

5.0

2

135.9

-0.6

133.8

1.2

141.2

8.4

126.0

6.7

3

156.1

3.1

153.4

5.1

140.0

5.7

136.9

5.1

4

154.9

6.8

150.0

7.1

140.3

5.9

135.3

5.3

5

158.5

6.7

153.0

7.1

138.1

2.5

137.9

5.9

6P

157.8

7.7

152.5

7.5

137.3

2.8

138.3

7.9

7P

157.1

14.3

150.0

14.9

140.0

3.1

137.1

9.8

2006

2007

P: Preliminary Source: Korea National Statistical Office

56

September 2007

3. Production capacity and operation ratio See graph 6-2

Y-o-Y change (%)

Operation ratio index (2000=100)

Y-o-Y change (%)

Average operation ratio (%)

115.1

4.8

102.5

2.8

80.3

2005

119.0

3.4

102.1

-0.4

79.7

2006

123.1

3.4

103.1

1.0

81.1

I

122.6

4.6

102.2

2.8

81.8

II

122.8

4.0

105.0

0.9

80.7

III

122.7

3.2

100.8

2.1

80.6

IV

124.3

2.1

104.4

-1.5

81.3

I

124.4

1.5

102.2

0.0

81.6

IIP

126.1

2.7

107.6

2.5

82.8

2006 1

122.5

4.6

99.8

-2.8

83.1

2

122.5

4.5

97.5

12.3

80.9

3

122.7

4.6

109.3

0.6

81.3

4

122.7

4.6

103.3

-1.4

79.3

5

122.8

3.7

106.2

2.1

80.9

6

122.8

3.6

105.5

1.8

81.9

7

122.8

3.6

94.9

-6.8

76.7

8

122.6

3.4

98.0

1.9

81.2

9

122.6

2.6

109.4

11.4

84.0

10

124.1

2.6

101.2

-3.5

81.9

11

124.3

1.9

109.7

0.9

81.6

12

124.4

1.9

102.4

-2.0

80.5

2007 1

124.4

1.6

104.2

4.4

81.4

2

124.4

1.6

93.0

-4.6

82.0

3

124.5

1.5

109.5

0.2

81.4

4

125.6

2.4

107.0

3.6

82.3

5

126.1

2.7

109.2

2.8

83.3

6P

126.7

3.2

106.7

1.1

82.7

7P

127.2

3.6

102.8

8.3

83.1

Production capacity index (2000=100)

2004

Period

2006

2007

P: Preliminary Source: Korea National Statistical Office

Economic Bulletin

57

4. Consumer goods sales index See graphs 2-2, 2-3, 2-4 & 2-5 (constant prices, 2000 = 100) Consumer goods sales index

Period

Y-o-Y change (%)

Y-o-Y change (%)

Semi-durable goods

Y-o-Y change (%)

Non-durable goods

Y-o-Y change (%)

2004

116.2

1.0

117.1

3.3

115.8

3.9

116.0

-1.4

2005

121.0

4.1

124.7

6.5

124.9

7.9

117.4

1.2

2006

126.7

4.7

138.4

11.0

131.3

5.1

118.7

1.1

I

121.9

5.3

127.7

11.5

124.1

7.4

118.0

1.2

II

127.3

6.1

136.8

11.3

134.3

6.7

119.2

3.0

III

122.4

2.9

140.8

11.4

114.9

2.9

116.7

-1.7

IV

135.2

4.5

148.1

9.6

151.9

3.6

120.8

2.0

I

130.6

7.1

149.4

17.0

132.0

6.4

120.5

2.1

IIP

134.0

5.3

156.1

14.1

139.2

3.6

120.3

0.9

2006 1

126.0

9.1

122.3

7.0

125.6

8.6

128.1

10.3

2

113.3

1.4

123.9

16.1

115.9

7.4

106.6

-8.2

3

126.5

5.3

136.9

11.7

130.8

6.4

119.2

1.4

4

125.6

5.5

131.2

8.0

137.7

8.7

117.1

2.7

5

129.7

6.6

136.6

11.3

141.2

7.3

120.7

3.7

6

126.5

6.0

142.5

14.5

123.9

3.9

119.7

2.6

7

118.9

-0.8

135.6

-0.7

115.7

1.8

111.9

-2.3

8

119.4

4.3

141.0

13.1

99.7

1.9

117.9

0.4

9

129.0

5.3

145.9

23.9

129.2

4.5

120.3

-3.2

10

129.8

5.2

136.6

8.8

141.4

0.0

120.8

6.2

11

134.1

5.1

151.3

11.8

152.7

6.8

116.7

0.3

12

141.7

3.3

156.5

8.3

161.6

3.9

124.9

0.0

2007 1

129.4

2.7

148.2

21.2

132.1

5.2

118.7

-7.3

2

127.0

12.1

139.2

12.3

124.1

7.1

122.2

14.6

3

135.5

7.1

160.9

17.5

139.7

6.8

120.7

1.3

4

131.8

4.9

151.3

15.3

141.2

2.5

117.5

0.3

5

137.5

6.0

158.1

15.7

145.9

3.3

123.2

2.1

6P

132.6

4.8

158.9

11.5

130.4

5.2

120.3

0.5

7P

130.5

9.8

165.3

21.9

121.5

27.6

117.3

4.8

2006

2007

P: Preliminary Source: Korea National Statistical Office

58

Durable goods

September 2007

5. Consumer goods shipment index and consumer sentiment index See graph 2-6

Domestic consumer goods shipment index (2000=100) Y-o-Y change (%)

Period

Consumer sentiment index Durable goods

Y-o-Y change (%)

Non-durable goods

Y-o-Y change (%)

Present Expectations situation index index

2004

105.8

-1.4

106.4

-4.7

103.6

-1.1

-

-

2005

108.0

2.1

112.6

5.8

104.2

0.6

-

-

2006

113.3

4.9

124.0

10.1

107.8

3.5

-

-

-

-

2006

I

109.4

6.8

116.1

14.0

105.0

4.4

-

-

II

111.3

5.7

125.1

12.5

104.4

3.1

-

-

III

113.4

5.3

121.7

9.1

109.4

4.5

-

-

IV

119.2

2.2

133.2

5.7

112.6

2.0

-

-

I

114.3

4.5

129.6

11.6

107.8

2.7

-

-

IIP

116.5

4.7

137.6

10.0

107.9

3.4

-

-

2006 1

110.4

3.0

112.3

10.0

107.9

0.9

104.5

88.4

2

103.1

12.4

112.5

23.1

97.8

8.3

103.8

89.0

3

114.6

5.9

123.5

10.3

109.2

4.5

103.4

90.1

4

108.8

4.7

118.1

9.9

103.7

3.1

100.6

87.2

5

112.0

6.8

125.5

13.5

105.3

4.2

98.0

83.0

6

113.0

5.5

131.8

14.2

104.2

2.1

97.4

81.9

7

104.7

-1.9

110.3

-5

102.2

0.7

94.3

78.7

8

110.5

3.3

117.4

8.6

107.5

2.2

93.7

77.8

9

124.9

14.2

137.3

24.4

118.4

10.3

94.8

78.9

10

114.1

0.3

126.8

3.6

107.8

0.0

93.9

80.7

11

122.8

4.4

139.4

8.1

115.1

4.4

95.2

77.3

12

120.7

1.9

133.4

5.2

115.0

1.6

93.7

77.1

2007 1

117.5

6.4

127.5

13.5

113.1

4.8

96.1

79.3

2

107.2

4.0

120.6

7.2

101.5

3.8

98.1

82.3

3

118.3

3.2

140.7

13.9

108.9

-0.3

97.8

83.3

4

115.3

6.0

132.1

11.9

108.5

4.6

100.1

87.4

5

118.9

6.2

142.2

13.3

109.6

4.1

101.1

89.6

6

115.4P

2.1P

138.6P

5.2P

105.6P

1.3P

101.5

90.4

7

115.5P

10.3P

138.8P

25.8P

106.2P

3.9P

102.6

91.4

8

-

-

-

-

-

-

103.0

91.4

2007

P: Preliminary Source: Korea National Statistical Office

Economic Bulletin

59

6. Machinery orders received, domestic machinery shipment and estimated facility investment index See graph 3-2 Domestic machinery orders received excluding ship (billion won, constant prices) Period

Estimated facility investment index (2000=100)

Domestic machinery shipment excluding ship (2000=100)

Total

Public

Private

27,422 32,574

3,338 3,576

24,085 28,998

10,984 14,535

107.4 115.3

101.8 106.6

I II III IV

8,116 8,300 7,914 8,244

636 761 944 1,234

7,480 7,539 6,970 7,009

3,867 3,828 3,381 3,459

111.1 115.3 115.8 119.1

101.9 108.2 102.4 114.0

2007 I IIP

9.360 8,911

713 582

8,646 8,329

4,137 4,050

123.7 129.3

108.5 114.6

2006 1 2 3 4 5 6 7 8 9 10 11 12

2,437 2,758 2,921 2,774 2,531 2,994 2,295 2.650 2,968 2.950 2.612 2,682

186 202 248 181 143 437 186 312 447 673 188 373

2,252 2,555 2,673 2,593 2,388 2,557 2,110 2,339 2,521 2,277 2,424 2,308

1,132 1,322 1,413 1,363 1,159 1,306 990 1,109 1,282 1,144 1,133 1,183

102.3 103.5 127.5 117.1 116.1 112.6 115.1 116.7 115.5 113.5 118.1 125.6

93.1 96.4 116.2 104.9 111.9 107.9 95.3 101.4 110.6 101.2 111.0 129.7

2007 1 2 3 4 5 6P 7P

3.071 3,171 3,118 2,808 2,986 3,118 2,997

227 243 243 188 184 210 293

2,844 2,928 2,874 2,620 2,801 2,908 2,704

1,378 1,462 1,296 1,313 1,287 1,450 1,289

118.1 116.7 136.4 135.5 129.3 123.0 116.6

102.8 102.6 120.2 109.8 118.8 115.2 106.5

2005 2006 2006

Manufacturing

Y-o-Y change (%) 2005 2006

5.7 18.8

-1.3 7.1

6.7 20.4

-0.7 32.3

6.3 7.4

0.6 4.7

2006

I II II IV

13.6 24.4 21.0 16.7

-31.1 24.7 19.0 22.1

20.2 24.4 21.3 15.8

32.0 30.0 35.0 32.8

6.2 6.7 11.8 5.1

4.8 3.2 4.0 6.7

2007

I IIP

15.3 7.4

12.1 -23.5

15.6 10.5

7.0 5.8

11.3 12.1

6.5 5.9

2006 1 2 3 4 5 6 7 8 9 10 11 12

2.8 40.4 3.9 19.2 16.5 37.9 6.2 18.4 38.7 34.1 16.6 2.1

6.9 30.2 -58.2 -19.1 -22.2 115.9 -38.8 6.9 125.2 114.9 -14.2 -22.0

2.5 41.3 20.5 23.3 20.1 29.9 13.6 20.2 29.8 20.7 19.9 7.5

5.2 60.7 37.0 28.6 16.4 46.8 23.9 33.3 46.6 44.6 30.5 25.2

1.5 4.7 11.7 13.9 5.7 0.7 3.9 14.4 17.7 5.6 7.8 2.3

1.3 11.1 2.9 1.0 8.2 0.8 -6.4 5.1 13.9 3.1 10.3 6.7

2007 1 2 3 4 5 6P 7P

26.0 15.0 6.7 1.2 18.0 4.1 30.6

22.1 20.2 -2.0 3.9 28.6 -52.0 58.0

26.3 14.6 7.5 1.0 17.3 13.7 28.1

21.7 10.7 -8.2 -3.7 11.0 11.0 30.2

15.4 12.8 7.0 15.7 11.4 9.2 1.3

10.4 6.4 3.4 4.7 6.2 6.8 11.8

P: Preliminary Source: Korea National Statistical Office

60

September 2007

7. Value of construction completed and domestic construction orders received See graphs 4-2 & 4-3 (current prices, billion won)

Period

2005 2006

Type of order

Type of order

Private

Domestic construction orders received (total)

Public

Private

23,031 23,470

50,144 52,623

83,489 91,001

21,825 20,460

58,975 66,550

Value of construction completed (total)

Public

75,831 78,637

2006

I II III IV

16,254 19,849 19,520 23,014

4,158 5,709 6,010 7,593

11,561 13,510 12,918 14,633

16,377 21,249 23,049 30,327

3,807 4,147 4,159 8,347

12,227 16,801 18,074 19,447

2007

I IIP

17,306 20,798

4,940 6,319

11,783 13,670

20,678 26,839

5,683 5,025

14,893 19,649

2006 1 2 3 4 5 6 7 8 9 10 11 12

4,977 4,902 6,376 6,354 6,461 7,034 5,873 6,286 7,361 6,826 7,533 8,655

1,291 1,218 1,649 1,790 1,841 2,078 1,724 1,890 2,396 2,192 2,271 3,130

3,525 3,521 4,515 4,375 4,415 4,720 3,989 4,229 4,701 4,435 5,009 5,189

5,846 4,515 6,017 5,266 6,744 9,239 7,123 5,808 10,118 5,245 9,031 16,051

901 1,518 1,388 1,229 1,403 1,515 987 785 2,387 1,609 2,796 3,941

4,809 2,893 4,525 3,992 5,249 7,560 6,020 4,598 7,457 3,503 6,101 9,843

2007

5,498 5,307 6,501 6,743 6,810 7,326 6,602

1,473 1,533 1,934 1,922 2,119 2,305 1,966

3,854 3,602 4,328 4,515 4,462 4,745 4,380

6,411 6,326 7,942 7,841 7,096 11,902 6,060

1,562 1,830 2,291 1,789 1,621 1,615 1,491

4,822 4,488 5,584 5,733 4,891 9,025 3,685

1 2 3 4 5 6P 7P

Y-o-Y change (%) 2005 2006

4.1 3.7

-3.7 1.9

7.5 4.9

7.3 9.0

-1.7 -6.3

14.5 12.8

2006

I II III IV

4.2 -0.3 4.8 6.0

-11.7 -5.8 9.0 12.6

11.0 2.2 3.8 4.0

-8.5 -14.7 37.1 27.1

-12.4 -29.9 21.2 2.7

-3.9 -6.0 36.8 28.3

2007

I IIP

6.5 4.8

18.8 10.7

1.9 1.2

26.3 26.3

49.3 21.2

21.8 17.0

2006 1 2 3 4 5 6 7 8 9 10 11 12

0.6 8.0 4.3 0.2 -0.8 -0.2 -2.4 1.7 14.4 6.1 5.6 6.3

-12.5 -13.5 -9.6 -6.4 -5.5 -5.6 -2.0 8.4 19.1 18.7 10.1 10.4

6.5 16.6 10.5 3.4 1.1 2.3 -1.4 0.5 12.1 2.2 4.7 5.0

10.9 29.0 -34.1 -17.7 -21.7 -6.8 6.8 15.0 98.5 -0.2 44.9 29.8

-34.6 158.0 -41.7 -35.8 -26.6 -27.6 -11.2 -24.6 86.6 27.9 27.9 -15.8

39.7 0.7 -29.4 -8.5 -18.6 7.0 10.4 14.9 98.4 -11.1 55.1 35.1

2007 1 2 3 4 5 6P 7P

10.5 8.3 2.0 6.1 5.4 4.2 12.4

14.1 25.9 17.3 7.4 15.1 10.9 14.0

9.3 2.3 -4.1 3.2 1.0 -0.5 9.8

9.7 40.1 32.0 48.9 5.2 28.8 -14.9

73.4 20.5 65.0 45.5 15.6 6.6 51.1

0.3 55.1 23.4 43.6 -6.8 19.4 -38.8

P: Preliminary Source: Korea National Statistical Office

Economic Bulletin

61

8. Composite indexes of business cycle indicators and BSI See graphs 13-1, 13-2 & 13-3

Y-o-Y change (%)

Coincident index (2000=100)

Cycle of coincident index (2000=100)

BSI (actual)

BSI (outlook)

120.3

2.0

127.1

99.2

84.6

77.8

2

121.0

2.3

127.2

98.8

87.2

85.7

3

122.3

3.1

127.9

98.9

110.7

119.2

4

123.0

3.4

128.2

98.7

107.0

117.6

5

123.6

3.7

129.2

99.1

98.2

114.1

6

123.8

3.8

129.9

99.2

93.4

105.1

7

124.7

4.3

130.9

99.6

91.7

96.5

8

125.6

4.9

131.7

99.8

91.0

91.7

9

126.4

5.3

132.2

99.7

99.2

111.4

10

126.9

5.5

132.3

99.4

98.0

110.2

11

128.0

6.1

133.3

99.7

101.8

107.8

12

129.2

6.8

134.2

99.9

107.1

103.8

2006 1

130.4

7.3

135.5

100.5

95.4

102.6

2

130.4

6.9

136.0

100.4

90.5

102.4

3

130.3

6.3

136.6

100.4

111.5

118.9

4

130.1

5.7

136.6

100.0

99.8

112.7

5

130.3

5.2

137.1

99.9

94.1

110.7

6

130.7

4.9

137.5

99.8

94.2

98.6

7

130.7

4.2

137.1

99.1

79.1

94.2

8

131.1

3.9

137.8

99.2

85.9

93.4

9

132.0

4.1

138.9

99.6

99.4

107.7

10

133.1

4.4

141.1

100.7

99.4

103.5

11

134.2

4.8

142.1

101.0

103.7

104.3

12

134.7

4.7

142.4

100.8

100.4

101.4

2007 1

135.1

4.7

142.7

100.6

85.6

96.5

2

135.9

4.9

143.4

100.7

87.5

93.4

3

136.2

4.8

143.8

100.5

109.4

112.3

4

137.2

5.1

144.5

100.6

105.8

107.7

5

137.7P

5.1P

145.0

100.5

104.1

110.9

6

138.9P

5.6P

146.2P

100.9P

100.2

105.6

7

139.8P

6.0P

147.5P

101.4P

95.8

99.3

8

-

-

-

-

94.4

102.5

9

-

-

-

-

-

111.8

Period

Leading index (2000=100)

2005 1

P: Preliminary Source: Korea National Statistical Office & The Federation of Korean Industries

62

September 2007

9. Balance of payments (I) See graphs 5-1, 5-2, 5-3, 10-1 & 10-2 (million US$)

Current balance

Period

Goods trade balance

Exports

Imports

Services trade balance

Income trade balance

Current transfers

2004

28,173.5

37,568.8

253,844.7

224,462.7

-8,046.1

1,082.8

-2,432.0

2005

14,980.9

32,683.1

284,418.7

261,238.3

-13,658.2

-1,562.5

-2,481.5

2006P

6,092.6

29,213.7

325,464.8

309,382.6

-18,762.9

-538.6

-3,819.5

I

5,263.5

8,750.5

66,807.6

60,626.8

-3,114.4

166.4

-539.0

II

2,352.1

8,365.8

69,702.8

63,694.9

-3,368.7

-1,948.8

-696.2

2005

III

2,198.2

7,234.8

71,097.7

66,228.3

-4,254.6

-97.3

-684.7

IV

5,167.1

8,332.0

76,810.7

70,688.3

-2,920.5

317.2

-561.6

2006P I

-1,118.4

5,222.6

73,885.0

72,542.1

-4,996.2

-481.7

-863.0

II

692.0

7,413.7

81,473.4

76,719.7

-3,878.9

-1,648.0

-1,194.8

III

374.9

6,227.9

82,712.8

80,215.8

-5,384.7

608.6

-1,076.9

IV

6,144.1

10,349.5

87,393.7

79,905.1

-4,503.1

982.5

-684.8

2007P I

-1,662.2

6,037.9

84,706.5

82,206.2

-6,180.1

-689.6

-830.4

II

34.4

6,970.2

93,015.9

87,698.0

-4,395.3

-1,543.1

-997.4

2006P 1

91.2

1,478.2

23,257.9

23,089.3

-1,644.0

571.4

-314.3

2

-782.8

837.3

23,787.0

23,507.8

-1,808.2

418.9

-230.8

3

-426.8

2,907.1

26,840.1

25,945.0

-1,544.0

-1,472.0

-317.9

4

-1,608.1

1,883.9

25,590.1

24,485.8

-1,345.7

-1,876.5

-269.8

5

1,359.6

2,815.3

27,934.5

26,210.4

-1,354.5

387.1

-488.3

6

940.5

2,714.5

27,948.8

26,023.5

-1,178.7

-158.6

-436.7

7

-392.7

1,619.4

25,774.4

25,549.7

-1,744.0

44.4

-312.5

8

-638.3

1,443.2

27,287.2

27,029.5

-2,087.3

311.7

-305.9

9

1,405.9

3,165.3

29,651.2

27,636.6

-1,553.4

252.5

-458.5

10

1,759.9

2,685.5

28,016.0

25,621.8

-1,192.8

461.2

-194.0

11

4,237.5

5,712.6

30,602.3

26,765.1

-1,426.3

236.3

-285.1

12

146.7

1,951.4

28,775.4

27,518.2

-1,884.0

285.0

-205.7

2007P 1

-428.1

1,292.1

28,092.1

27,602.1

-1,943.4

547.1

-323.9

2

402.1

2,387.3

26,277.6

25,370.6

-2,551.1

850.7

-284.8

3

-1,636.2

2,358.5

30,386.8

29,233.5

-1,685.6

-2,087.4

-221.7

4

-2,078.1

1,519.5

29,953.9

29,486.6

-1,396.1

-2,001.5

-200.0

5

839.1

2,239.0

31,044.7

29,756.4

-1,483.2

461.6

-378.3

6

1,273.4

3,211.7

32,017.3

28,455.0

-1,516.0

-3.2

-419.1

7

1,635.5

3,127.2

30,358.3

29,245.1

-1,688.1

533.5

-337.1

P: Preliminary Source: The Bank of Korea & Korea Customs Service

Economic Bulletin

63

10. Balance of payments (II) See graph 10-3 (million US$)

Period

2004

Changes in reserve assets

Errors and omissions

-1,752.8

-38,710.5

2,938.2

Capital & financial account

Direct investment

Portfolio investment

Other investment

Capital transfers & acquisition of non-financial assets

7,598.8

4,588.3

8,619.3

-3,856.0

2005

4,756.5

2,010.4

-1,728.2

6,814.7

-2,340.4

-19,805.8

68.4

2006P

18,618.7

-3,483.5

-22,543.6

47,679.1

-3,033.3

-22,111.7

-2,599.6

I

4,141.5

-194.0

-1,278.2

6,125.5

-511.8

-9,513.7

108.7

2005

II

2,257.6

1,249.7

-2,575.3

4,247.5

-664.3

-2,817.2

-1,792.5

III

-504.3

48.8

-147.5

256.8

-662.4

-2,300.1

606.2

IV

-1,138.3

905.9

2,272.8

-3,815.1

-501.9

-5,174.8

1,146.0

2006P I

6,524.4

-1,306.7

1,436.2

7,083.8

-688.9

-5,679.3

273.3

II

3,684.4

780.4

-14,176.7

17,880.6

-799.9

-4,315.7

-60.7

III

4,773.7

-3,656.5

-7,395.3

16,479.6

-654.1

-3,615.4

-1,533.2

IV

3,636.2

699.3

-2,407.8

6,235.1

-890.4

-8,501.3

-1,279.0

2007P I

5,313.6

-959.8

-10,492.9

17,580.4

-814.1

-3,998.3

346.9

II

6,442.1

-2,867.7

-27.2

10,023.0

-686.0

-6,250.1

-226.4

2006P 1

3,628.2

-319.4

609.5

3,561.3

-223.2

-5,432.6

1,713.2

2

2,110.2

190.4

2,207.1

-92.7

-194.6

140.7

-1,468.1

3

786.0

-1,177.7

-1,380.4

3,615.2

-271.1

-387.4

28.2

4

4,862.8

585.2

-3,180.0

7,745.1

-287.5

-3,354.6

99.9

5

513.1

125.6

-7,880.1

8,509.1

-241.5

-495.6

-1,377.1

6

-1,691.5

69.6

-3,116.6

1,626.4

-270.9

-465.5

1,216.5

7

1,730.1

-114.2

-3,669.2

5,789.4

-275.9

-686.0

-651.4

8

1,234.9

-663.3

-4,448.2

6,511.4

-165.0

-959.8

363.2

9

1,808.7

-2,879.0

722.1

4,178.8

-213.2

-1,969.6

-1,245.0

10

-2,263.8

-57.9

-614.1

-1,328.7

-263.1

-956.2

1,460.1

11

436.0

126.1

-653.5

1,286.9

-323.5

-2,695.1

-1,978.4

12

5,464.0

631.1

-1,140.2

6,276.9

-303.8

-4,850.0

-760.7

2007P 1

2,078.9

-208.9

-1,411.2

4,054.0

-355.0

-2,350.7

699.9

2

-404.0

-687.6

-1,940.7

2,427.6

-203.3

-1,134.7

1,136.6

3

3,638.7

-63.3

-7,141.0

11,098.8

-255.8

-512.9

-1,489.6

4

4,203.3

-388.2

3,808.0

1,029.3

-245.8

-1,878.4

-246.8

5

3,597.1

-311.3

529.6

3,613.2

234.4

-4,492.9

56.7

6

-1,358.3

-2,168.2

-4,364.8

5,380.5

-205.8

121.2

-36.3

7

537.1

-3.0

-6,925.0

7,692.6

-227.5

-2,421.6

249.0

P: Preliminary Source: The Bank of Korea

64

September 2007

11. Prices See graphs 11-1, 11-2 & 11-3 (2000 = 100) Consumer prices (2005=100)

Producer prices

Export & import prices

Period All Items

Commodity

Service

Core

All items

Commodity

Export

Import

2004 2005 2006

97.3 100.0 102.2

96.9 100.0 101.5

97.7 100.0 102.7

97.7 100.0 101.8

107.6 109.9 112.4

107.2 109.8 112.6

92.9 86.7 85.1

108.9 112.0 118.0

2006 1 2 3 4 5 6 7 8 9 10 11 12

101.1 101.3 101.9 102.0 102.2 102.0 102.4 103.0 103.3 102.8 102.3 102.6

101.1 101.1 101.1 101.3 101.6 101.0 101.5 103.0 103.1 101.8 100.7 101.2

101.1 101.4 102.3 102.5 102.6 102.7 103.0 103.1 103.4 103.4 103.4 103.6

100.6 100.8 101.4 101.5 101.9 101.9 102.1 102.2 102.2 102.2 102.3 102.5

110.9 110.9 111.0 111.8 112.5 112.5 113.0 113.9 114.2 113.1 112.5 112.6

110.7 110.7 110.9 111.9 112.8 112.9 113.5 114.7 114.9 113.3 112.4 112.5

83.8 82.5 83.3 83.6 84.7 86.2 87.1 89.1 87.3 85.9 84.1 83.6

115.0 113.7 114.3 117.2 119.7 120.7 123.3 125.3 119.1 116.9 115.1 115.4

2007 1 2 3 4 5 6 7 8

102.8 103.5 104.1 104.5 104.6 104.6 105.0 105.1

101.4 102.3 102.3 102.8 102.8 102.7 103.3 103.5

103.8 104.2 105.2 105.5 105.7 105.8 106.0 106.1

102.7 103.1 103.8 104.1 104.1 104.2 104.4 104.5

112.6 112.8 113.4 114.6 115.3 115.5 115.7 115.8

112.3 112.5 113.3 114.8 115.6 115.8 116.0 116.2

83.4 84.0 85.6 86.4 87.0 87.1 87.1 88.1

112.4 115.4 119.3 122.1 122.8 122.7 123.2 124.0

Y-o-Y change (%) 2004 2005 2006

3.6 2.8 2.2

4.2 3.2 1.5

3.1 2.4 2.7

2.9 2.3 1.8

6.1 2.1 2.3

7.5 2.4 2.6

6.2 -6.7 -1.9

10.2 2.9 5.3

2006 1 2 3 4 5 6 7 8 9 10 11 12

2.2 2.0 2.0 2.0 2.3 2.4 2.4 2.7 2.5 2.2 2.1 2.1

2.5 1.6 1.2 1.0 1.8 2.0 1.7 2.7 1.6 0.7 1.0 0.8

2.0 2.3 2.3 2.7 2.7 2.8 2.9 2.8 3.1 3.1 2.9 2.9

1.3 1.3 1.4 1.5 1.8 1.9 2.1 2.1 2.0 2.0 2.1 2.1

2.1 1.7 1.4 1.5 2.6 3.2 2.8 3.4 3.1 1.9 1.9 2.2

2.3 1.7 1.3 1.3 2.8 3.9 3.4 4.0 3.5 1.9 1.9 2.4

-3.6 -4.9 -4.4 -4.0 0.6 1.3 -0.5 2.4 -1.7 -3.6 -2.6 -1.6

10.2 8.5 5.7 6.1 11.3 9.2 7.8 7.5 0.2 -1.4 -0.3 0.6

2007 1 2 3 4 5 6 7 8

1.7 2.2 2.2 2.5 2.3 2.5 2.5 2.0

0.3 1.2 1.2 1.5 1.2 1.7 1.8 0.5

2.7 2.8 2.8 2.9 3.0 3.0 2.9 2.9

2.1 2.3 2.4 2.6 2.2 2.3 2.3 2.3

1.5 1.7 2.2 2.5 2.5 2.7 2.4 1.7

1.4 1.6 2.2 2.6 2.5 2.6 2.2 1.3

-0.4 1.9 2.7 3.4 2.7 1.1 0.0 -1.1

-2.3 1.5 4.4 4.2 2.6 1.6 -0.1 -1.0

Source: Korea National Statistical Office

Economic Bulletin

65

12. Employment and earnings See graphs 8-1, 8-2 & 8-3

Economically active persons (thous.)

Period

Employed persons (thous.)

Unemployment (%)

All industry earnings (won) (base year=2000) Manufacturing

All industry Manufacturing S.O.C&service 2004 2005 2006

23,417 23,743 23,978

22,557 22,856 23,151

4,290 4,234 4,167

16,427 16,789 17,181

3.7 3.7 3.5

2,372,612 2,524,917 2,666,550

2,279,724 2,458,022 2,594,830

2006 1 2 3 4 5 6 7 8 9 10 11 12

23,340 23,365 23,769 24,088 24,267 24,320 24,270 23,972 24,096 24,253 24,225 23,773

22,471 22,412 22,848 23,242 23,484 23,501 23,447 23,164 23,330 23,463 23,458 22,989

4,201 4,184 4,179 4,188 4,170 4,184 4,180 4,114 4.135 4,183 4,137 4,153

16,893 16,763 16,986 17,186 17,293 17,294 17,303 17,099 17,248 17,294 17,467 17,348

3.7 4.1 3.9 3.5 3.2 3.4 3.4 3.4 3.2 3.3 3.2 3.3

2,865,004 2,451,498 2,481,580 2,504,830 2,356,038 2,685,520 2,646,200 2,607,031 2,796,266 2,690,402 2,409,143 3,502,448

2,803,400 2,376,782 2,322,720 2,424,268 2,201,426 2,580,407 2,596,198 2,531,654 2,648,830 2,681,556 2,226,062 3,745,800

2007 1 2 3 4 5 6 7 8

23,580 23,536 23,960 24,337 24,537 24,593 24,545 24,214

22,729 22,674 23,121 23,520 23,758 23,816 23,750 23,458

4,156 4,139 4,119 4,124 4,114 4,140 4,126 4,052

17,221 17,114 17,371 17,573 17,677 17,715 17,740 17,524

3.6 3.7 3.5 3.4 3.2 3.2 3.2 3.1

2,627,540 3,013,449 2,641,959 2,643,764 -

2,425,973 3,056,645 2,471,807 2,607,695 -

Y-o-Y change (%) 2004 2005 2006

2.0 1.4 1.0

1.9 1.3 1.3

2.0 -1.3 -1.6

2.9 2.2 2.3

-

6.5 6.4 5.6

9.9 7.8 5.6

2006 1 2 3 4 5 6 7 8 9 10 11 12

1.2 1.3 1.0 1.0 0.9 0.8 0.8 1.2 0.7 0.8 1.0 1.1

1.8 1.5 1.2 1.3 1.2 1.1 1.1 1.4 1.2 1.2 1.1 1.3

-1.2 -1.7 -2.2 -1.9 -1.9 -1.6 -1.2 -1.3 -1.6 -1.4 -1.4 -1.6

3.0 2.5 2.5 2.9 2.5 2.2 2.2 2.3 2.1 1.9 1.9 2.0

-

20.3 -7.7 5.5 5.3 7.9 4.1 6.0 5.9 1.3 11.5 5.6 4.6

24.1 -11.8 5.7 4.1 8.1 3.4 5.9 5.3 -0.2 13.1 6.1 6.9

2007 1 2 3 4 5 6 7 8

1.0 0.7 0.8 1.0 1.1 1.1 1.1 1.0

1.1 1.2 1.2 1.2 1.2 1.3 1.3 1.3

-1.1 -1.1 -1.4 -1.5 -1.3 -1.0 -1.3 -1.5

1.9 2.1 2.3 2.3 2.2 2.4 2.5 2.5

-

-8.3 22.9 6.5 5.5 -

-13.5 28.6 6.4 7.6 -

Source: Korea National Statistical Office

66

September 2007

13. Financial indicators See graphs 9-1 & 9-4 (period average) Yields (%)

Stock

Period Call rate (1 day)

CD (91 days)

Corporate bonds (3 years, AA-)

Treasury bonds (3 years)

Treasury bonds (5 years)

KOSPI (end-period)

2005 1

3.3

3.5

4.1

3.7

3.9

932.70

2

3.3

3.6

4.6

4.2

4.5

1,011.40

3

3.3

3.6

4.5

4.0

4.3

965.70

4

3.3

3.5

4.3

3.9

4.1

911.30

5

3.3

3.5

4.1

3.7

3.9

970.20

6

3.3

3.5

4.2

3.8

4.0

1,008.20

7

3.3

3.5

4.5

4.1

4.4

1,111.30

8

3.3

3.5

4.8

4.3

4.7

1,083.30

9

3.3

3.7

4.9

4.5

4.8

1,221.00

10

3.4

3.9

5.2

4.8

5.1

1,158.10

11

3.5

4.0

5.5

5.1

5.4

1,297.40

12

3.7

4.0

5.5

5.1

5.3

1,379.40

2006 1

3.7

4.2

5.5

5.0

5.3

1,399.80

2

3.9

4.3

5.3

4.9

5.0

1,371.60

3

4.0

4.3

5.3

4.9

5.1

1,359.60

4

4.0

4.3

5.2

5.0

5.2

1,419.70

5

4.0

4.4

5.1

4.8

4.9

1,371.70

6

4.2

4.5

5.2

4.9

5.0

1,295.70

7

4.2

4.6

5.2

4.9

5.0

1,297.80

8

4.4

4.7

5.1

4.8

4.8

1,352.70

9

4.5

4.6

5.0

4.7

4.8

1,371.40

10

4.5

4.6

4.9

4.6

4.7

1,364.60

11

4.5

4.6

5.1

4.7

4.8

1,432.20

12

4.5

4.8

5.2

4.8

4.9

1,434.50

2007 1

4.6

4.9

5.3

5.0

5.0

1,360.20

2

4.6

5.0

5.3

4.9

4.9

1,417.30

3

4.6

4.9

5.2

4.8

4.8

1,452.60

4

4.7

5.0

5.3

4.9

5.0

1,542.24

5

4.6

5.0

5.5

5.1

5.1

1,700.91

6

4.5

5.0

5.6

5.2

5.4

1,743.60

7

4.7

5.1

5.8

5.4

5.4

1,933.30

8

4.9

5.2

5.7

5.3

5.3

1,873.30

Source: The Bank of Korea

Economic Bulletin

67

14. Monetary indicators See graph 9-5 (period average)

Period

(billion won)

Reserve money

M1

M2

Lf

2004 2005 2006

37,272.4 38,785.2 41,664.0

306,842.5 332,902.1 330,134.1

929,640.6 993,960.1 1,076,682.4

1,260,547.1 1,348,818.8 1,454,858.8

2006 1 2 3 4 5 6 7 8 9 10 11 12

41,336.0 41,655.5 40,991.9 41,190.0 40,734.4 40,715.1 41,973.7 40,287.2 41,500.4 43,199.9 41,507.4 44,876.4

327,542.1 326,548.3 325,711.9 324,222.6 323,908.4 326,949.2 330,267.7 325,958.2 327,648.4 333,597.5 337,666.0 351,588.5

1,027,697.4 1,034,711.9 1,042,293.6 1,048,598.6 1,055,855.4 1,072,886.5 1,082,577.5 1,084,752.6 1,098,444.2 1,110,360.9 1,123,714.6 1,138,295.5

1,398,707.3 1,407,971.3 1,413,306.8 1,421,447.5 1,430,748.5 1,445,440.3 1,460,729.4 1,468,210.0 1,479,577.9 1,494,767.6 1,510,883.0 1,526,516.2

2007 1 2 3 4 5 6 7

47,851.4 49,493.5 48,936.8 47,485.3 48,092.5 47,914.3 47,500.5

353,494.2 350,734.7 335,446.8 305,602.5 301,184.5 302,511.7 302,375.6

1,143,814.9 1,154,108.8 1,162,429.3 1,165,291.0 1,171,148.4 1,190,080.2 1,200,892.7

1,536,010.8 1,547,512.8 1,557,701.9 1,564,339.3 1,575,635.4 1,596,407.1 1,606,595.3

Y-o-Y change (%) 2004 2005 2006

4.2 4.1 7.4

8.3 8.5 -0.8

4.6 6.9 8.3

6.1 7.0 7.9

2006 1 2 3 4 5 6 7 8 9 10 11 12

9.0 5.0 7.8 8.6 7.5 7.6 10.2 4.3 4.1 8.7 5.2 11.3

1.7 -0.8 -2.7 -3.0 -2.3 -3.0 -4.7 -6.1 -5.6 -1.9 10.0 10.4

7.3 7.2 6.6 6.8 7.1 7.7 7.7 7.5 9.0 10.1 11.1 11.4

7.2 7.4 7.0 7.4 7.6 7.3 7.3 7.4 7.9 8.7 9.4 9.6

2007 1 2 3 4 5 6 7

15.8 18.8 19.4 15.3 18.1 17.7 13.2

7.9 7.4 3.0 -5.7 -7.0 -7.5 -8.4

11.3 11.5 11.5 11.1 10.9 10.9 10.9

9.8 9.9 10.2 10.1 10.1 10.4 10.0

P: Preliminary Source: The Bank of Korea

68

September 2007

15. Exchange rates See graphs 9-2 & 9-3

/US$

/100

/Euro

Period End-period

Average

End-period

Average

End-period

Average

1,043.8 1,013.0 929.6

1,144.7 1,024.3 955.5

1,012.1 859.9 781.8

1,058.7 930.7 821.5

1,423.0 1,199.3 1,222.2

1,422.9 1,274.0 1,199.3

2006 1 2 3 4 5 6 7 8 9 10 11 12

971.0 969.0 975.9 945.7 947.4 960.3 953.1 959.6 945.2 944.2 929.9 929.6

987.0 970.2 975.1 954.4 941.4 955.2 950.2 960.7 953.7 954.2 936.2 925.8

824.9 833.8 831.7 828.3 842.2 834.0 830.2 820.3 802.2 803.5 799.0 781.8

854.3 822.4 831.3 814.8 843.0 833.0 821.4 829.7 814.3 803.2 798.0 790.2

1,173.8 1,147.9 1,187.1 1,184.9 1,208.0 1,215.9 1,216.4 1,232.3 1,200.6 1,200.8 1,223.0 1,222.2

1,194.8 1,159.7 1,172.8 1,169.9 1,201.7 1,208.7 1,206.2 1,230.6 1,214.9 1,202.4 1,205.3 1,222.8

2007 1 2 3 4 5 6 7 8

940.9 938.3 940.3 929.4 929.9 926.8 923.2 939.9

936.4 937.0 943.3 931.5 927.9 928.3 918.9 933.8

773.1 793.9 797.0 778.3 764.8 752.4 774.6 809.9

777.9 776.8 804.8 783.7 768.5 757.1 755.6 799.8

1,220.1 1,241.9 1,253.9 1,266.9 1,249.0 1,246.0 1,266.9 1,282.3

1,217.0 1,225.1 1,249.4 1,257.7 1,254.1 1,244.9 1,260.0 1,272.4

2004 2005 2006

Y-o-Y change (%) 2004 2005 2006

-12.9 -3.0 -8.2

-4.0 -10.5 -6.7

-9.6 -15.0 -9.1

2.8 -12.1 -11.7

-5.3 -15.7 1.9

5.5 -10.5 -5.9

2006 1 2 3 4 5 6 7 8 9 10 11 12

-5.4 -3.9 -4.7 -5.7 -5.5 -6.3 -7.3 -6.9 -8.9 -9.5 -10.3 -8.2

-4.9 -5.1 -3.2 -5.6 -6.1 -5.5 -8.4 -5.9 -7.4 -8.8 -10.1 -9.6

-16.7 -12.9 -12.7 -12.3 -9.3 -10.1 -9.3 -11.4 -12.4 -10.8 -7.7 -9.1

-15.1 -15.6 -13.2 -13.6 -10.3 -10.4 -11.4 -10.0 -12.2 -11.8 -9.3 -8.5

-12.2 -14.0 -10.3 -8.4 -3.5 -1.8 -2.5 -2.1 -3.8 -4.5 0.3 1.9

-12.4 -13.1 -11.7 -10.6 -5.5 -1.7 -3.5 -1.9 -3.7 -4.4 -1.9 0.7

2007 1 2 3 4 5 6 7 8

-3.1 -3.2 -3.7 -1.7 -1.9 -3.5 -3.1 -2.1

-5.1 -3.4 -3.3 -2.4 -1.4 -2.8 -3.3 -2.8

-6.3 -4.8 -4.2 -6.0 -9.2 -9.8 -6.7 -1.3

-8.9 -5.5 -3.2 -3.8 -8.8 -9.1 -8.0 -3.6

3.9 8.2 5.6 6.9 3.4 2.5 4.2 4.1

1.9 5.6 6.5 7.5 4.4 3.0 4.5 3.4

Source: The Bank of Korea

Economic Bulletin

69

Editor-in-Chief Kang, Ho-In (MOFE) Editorial Board Song, Kyung-Jin (MOFE) Kim, Dong-Yule (KDI) Shim, Jae-Hak (KDI) Coordinators Pae, Soo-Hyun (MOFE) Kang, Ji-Eun (KDI) Assistant Editors Kim, Kyu-Min (MOFE) Shin, Jung-Eun (MOFE) Song, Heather (MOFE) Kim, Jin-Mi (KDI) Baek, So-Myung (KDI)

Useful Internet Websites Economy-related Websites Recommended

Ministry of Finance and Economy http://english.mofe.go.kr Ministry of Commerce, Industry and Energy http://english.mocie.go.kr Ministry of Planning and Budget http://www.mpb.go.kr/english.html Financial Supervisory Commission/Financial Supervisory Service http://www.fsc.go.kr/eng Fair Trade Commission http://www.ftc.go.kr/eng Ministry of Labor http://english.molab.go.kr Bank of Korea http://www.bok.or.kr Korea National Statistical Office http://www.nso.go.kr/eng/index.html