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Press Conference: SERI Economic Outlook for 2012

Dec. 14, 2011

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Press Conference: SERI Economic Outlook for 2012

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Press Conference: SERI Economic Outlook for 2012

Korea's economic growth for 2012 is forecast to slow to 3.6%, with the growth of the global economy projected at 3.5% announced Samsung Economic Research Institute (SERI) at a press conference on December 1, 2011 at the Seoul Foreign Correspondents Club. Following the economic outlook, SERI also announced the fourth quarter results of the Korean Peninsula Security Index (KPSI) and security outlook for the coming year. Presiding over the conference was SERI vice president and director of the Global Studies Department Dr. Hwang In-Seong and making the presentations were SERI vice president and director of the Macroeconomics Research Department Dr. Kwon Soon-Woo and senior fellow Dr. Dong Yong-Sueng.

As an export led economy, the eurozone fiscal crisis will have a negative impact on Korea’s economy but the decline will be limited as 70% of Korea’s exports are to emerging economies that are expected to grow 5% next year. However, Korea’s main Achilles Heel for the coming year will be domestic demand which will remain stagnant due to weaker consumer sentiment, high consumer prices and mounting household debt. Private consumption, in particular, is estimated at a low 2.6% in 2012, a sharp decline from the 4.1% rise in 2010 said Dr. Kwon.

Dr. Kwon further added consumer prices will decline from the 4.4% growth in 2011 but still remain fairly high at 3.4%. The fall is mainly due to declining commodity prices, especially raw materials, and an appreciation of the won. However, the fall will be limited due to unstable service prices which will continue on an upward trajectory into next year. As for the exchange rate, the won is expected to remain strong with the average won/dollar exchange rate set at 1,060 won.

Dr. Kwon concluded the presentation by proposing three policy suggestions given the high uncertainty of the global economy. First is to rigorously prepare for external shocks by securing more foreign liquidity, establishing a global safety net and making efforts for a continued current account surplus. Second, in terms of macroeconomic policy, the current policies should be maintained as the global economy is extremely unstable. And lastly, a structural response must be established in order to deal with the serious decline in Korea’s domestic demand. He added that the biggest task for the Korean government is to deregulate the service sector which will create more employment and stimulate the consumption market.

Following the 2012 economic outlook, Dr. Dong presented the fourth quarter KPSI and security outlook. The composite current index for the fourth quarter of 2011 and the composite outlook index both scored a stable 53.7 and 52.61, respectively. With a benchmark of 50, a score of over 50 indicates a positive view of the security situations on the Korean peninsula. The main reasons for the positive results are that the relations between South Korea and the US, and North Korea and China both received high scores of 77 and 60, respectively. Also contributing was the high score received for the stability of the North Korean regime.

Dr. Dong continued by saying that despite the overall positive results, there were also some negative variables. The main variable was the issue of voluntary disarmament by the North which scored a lowly 30. Also not up to par was Korea’s socio-political and economic stability which scored lower than previous quarters. As for the outlook, the relationship between the two Koreas will be a determinant in assessing the overall stability of the Korean peninsula. But, together various positive signs and events, the gas pipeline project between South and North Korea and Russia will play a significant role in easing tensions concluded Dr. Dong.

The conference rounded off with a Q&A session. Notable concerns and issues included how much the coming elections influenced the economic forecasts, the volatility of the regional stock markets, the opportunity costs of having an overregulated service sector, and if the improvements in the relations between the five aforementioned countries would impact negatively on the security of the peninsula.

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