Professional Documents
Culture Documents
Republic of Korea
Economic Bulletin
Policy Issues
2010 Tax revision 42
Statistical Appendices 53
The Green Book
Current Economic Trends
Overview
The Korean economy saw private sector employment expanding at a faster pace, backed by
brisk exports and steadily recovering domestic demand.
Mining and manufacturing production in July, thanks to robust exports, rose 1.1 percent month-
on-month and 15.5 percent year-on-year. Service output lost 1.0 percent month-on-month
affected by early fiscal spending in the first half, while gaining 3.4 percent year-on-year.
In July facilities investment dropped 3.1 percent month-on-month due to a high base effect of
8.0 percent increase, but year-on-year, the index rose 33.5 percent. Construction completed,
while improving 3.5 percent year-on-year, shed 3.2 percent month-on-month, as early
budget spending in the first half negatively affected civil engineering works.
The total number of workers hired in July gained 473,000 year-on-year, led by the
manufacturing and service sectors. The employment rate (seasonally adjusted) posted 59.1
percent, adding 0.5 percentage points year-on-year, while the unemployment rate
(seasonally adjusted) landed at 3.7 percent, the same level as the previous year.
Exports in August, led by semiconductors and automobiles, jumped 29.6 percent year-on-
year. Imports rose 29.3 percent from a year earlier, as those of capital and consumer goods
accelerated an increase.
The consumer price in August posted a modest year-on-year increase at mid-2 percent level,
as low prices of manufactured goods offset rising prices of agricultural products caused by
bad weather conditions and an increase in some public utilities charges.
In August, stock prices fell and foreign exchange rates rose, as worries over a possible
slowing down of the global economic recovery revived appetite for safer assets.
Housing prices in August continued to fall due to declining demand, in particular in the Seoul
metropolitan area, while rental prices increased affected by the summer moving season.
To sum up, although the Korean economy shows clear signs of improvement, external
uncertainties grow as major economies slow down and international commodity prices
become volatile.
Given the external and internal economic situations, the Korean government will continue
macroeconomic policies which facilitate sustainable growth, while pursuing a dynamic
economy to absorb external shocks. On the other hand, the government will renew policy
efforts to create more jobs, stabilize prices on the basis of a virtuous cycle, and make fair
trade take hold between large enterprises and SMEs, all of which will lead to more security
in the living of the working class.
Economic Bulletin 3
1. Global economy
Although the global economy continued a recovery track in terms of the real economy, the
pace of the recovery slowed down, especially in the US and China. The US, China and
Eurozone announced measures to keep the current monetary easing policies and froze base
rates.
US US real GDP in the second quarter revised down to 1.6 percent (annualized q-o-q,
preliminary), with housing and job markets continuing to be sluggish, while industrial
production and retail sales shifted to an increase.
Both existing and new home sales dropped month-on-month in July by 27.2 percent and 12.4
percent, respectively, staying on a downward track since the expiration of the 2010 Home
Buyer Tax Credits.
The unemployment rate posted 9.6 percent in August, up 0.1 percentage point from the
previous month, with those on non-farm payrolls decreasing 54,000, while the private sector
added 67,000 jobs.
Industrial production and retail sales shifted to an increase in July, and in August the
Institute for Supply Management (ISM) manufacturing index improved.
The Federal Reserve at the FOMC meeting on August 10 decided to maintain the target for
the federal fund rate at zero to 0.25 percent along with other quantitative easing measures
revived. Fed chairman Bernanke mentioned on August 27 that the Fed is prepared to provide
additional monetary accommodation if the economic outlook were to deteriorate
significantly.
Consumer prices (y-o-y, %) -0.3 -0.2 -1.0 -1.6 1.5 2.4 1.8 1.1 1.3
1. Annualized rate (%)
2. Monthly average
Source: US Department of Commerce
4 September 2010
1-1 US GDP (q-o-q, annualized rate)
Source: US Department of Commerce
Economic Bulletin 5
China China’s economy saw industrial production and fixed asset investment rise at a slower pace,
while domestic consumption and exports continued an upward trend. Consumer prices went
up 3.3 percent with the Manufacturing Purchasing Managers Index (PMI) shifting to an increase
in four months, while housing prices decelerated an increase for the third straight month.
Japan Japan’s economy decelerated the growth at 0.1 percent quarter-on-quarter in the second
quarter of 2010 amid ongoing deflation, while the appreciating yen undermined export
growth. The Bank of Japan and the Japanese government released additional monetary
easing measures of 10 trillion yens and a stimulus package as large as 920 billion yens,
respectively, on August 30.
(Percentage change from previous period)
2008 2009 2010
Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 Jun Jul
Real GDP -1.2 -5.2 -4.4 2.5 -0.3 1.0 1.1 0.1 - -
Industrial and mining production -3.4 -21.8 -20.1 6.6 5.3 5.9 7.0 1.5 -1.1 0.3
Retail sales (y-o-y, %) 0.3 -2.2 -3.9 -0.9 -3.4 -0.7 3.8 1.7 -2.4 8.9
Exports (y-o-y, %) -3.0 -34.2 -47.8 -39.9 -35.5 -8.7 44.8 35.0 27.7 23.5
Consumer prices (y-o-y, %) 1.4 -1.4 -0.1 -1.0 -2.2 -2.0 -1.2 -0.9 -0.7 -0.9
Source: Japan's Statistics Bureau and Statistics Centre
Eurozone
The eurozone economy grew faster in the second quarter of 2010, posting a 1.0 percent rise
from the previous quarter, as major eurozone economies performed well including the
German economy which posted 2.2 percent quarter-on-quarter growth. The European
Central Bank (ECB) decided on September 3 to maintain the base rate at 1.0 percent and
extend emergency liquidity supplies to early 2011.
(Percentage change from previous period)
2008 2009 2010
Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 Jun Jul
Real GDP 0.8 -4.0 -2.5 -0.1 0.4 0.2 0.3 1.0 - -
Industrial production -1.8 -14.9 -9.3 -1.6 2.6 1.3 2.5 2.5 -0.2 -
Retail sales -0.7 -2.3 -1.0 -0.1 -0.2 0.2 0.5 0.0 0.3 -
Exports (y-o-y, %) 3.9 -18.2 -21.1 -23.0 -19.6 -8.6 12.9 22.8 27.0 -
Consumer prices (y-o-y, %) 3.3 0.3 1.0 0.2 -0.4 0.4 1.1 1.5 1.4 1.7
Source: Eurostat
6 September 2010
1-4 China’s GDP and fixed asset investment
Source: National Bureau of Statistics of China
Economic Bulletin 7
2. Private consumption
Private consumption (preliminary GDP) increased 0.8 percent quarter-on-quarter and 3.7
percent year-on-year in the second quarter of 2010.
Consumer goods sales in July, despite a drop in durable goods sales, rose 1.2 percent
month-on-month, as the sales of semi-durable and non-durable goods increased.
On a month-on-month basis, durable goods sales declined 1.2 percent affected by a 5.2
percent fall in automobile sales, while non-durable goods sales such as those of vehicle
fuels and food & beverages substantially improved by 2.7 percent.
On a year-on-year basis, the index increased 8.6 percent, as the sales of durable goods such
as home electronics, semi-durable goods such as footwears and bags, and non-durable
goods such as food & beverages all improved.
Sales at large discounters and specialized retailers rose at a faster pace, while those at
department stores slowed down an increase slightly.
8 September 2010
2-1 Private consumption
Source: The Bank of Korea (national accounts)
Economic Bulletin 9
Although consumer goods sales are projected to temporarily decrease month-on-month in
August, affected by a high base effect in the last three consecutive months and unusual
weather conditions, the year-on-year trend is expected to steadily rise given improving
household income and strong consumer sentiment.
Domestic credit card spending continued to post a year-on-year double digit increase. Sales
at department stores and large discounters decelerated a rise by 3.1 percentage points and
4.9 percentage points, respectively.
Domestic sales of Korean cars went up 20.7 percent year-on-year, along with those of
gasoline increasing 6.4 percent.
Rain might negatively affect retail sales in August, as the number of rainy days increased
10.2 days from 13.8 days of the monthly average to 24 days.
Consumer sentiment in August, despite a slight fall from the previous month, stayed above
the base, while household real income had increased at a faster pace since the fourth
quarter of 2009.
10 September 2010
2-4 Department store and discount store sales (current value)
Source: Ministry of Knowledge Economy (monthly retail sales)
Economic Bulletin 11
3. Facility investment
Facility investment (preliminary GDP) in the second quarter of 2010 posted a quarter-on-
quarter increase of 9.1 percent and a year-on-year gain of 30.2 percent.
Facility investment in July fell 3.1 percent month-on-month, led by machinery investment,
due to a high base effect of an 8.0 percent increase from the month before, while rising 33.5
percent year-on-year.
2010
Mar Apr May Jun Jul Aug
Business survey indices (base=100) for
103 104 104 107 106 106
manufacturing facility investment projections
Source: The Bank of Korea
12 September 2010
3-1 Facility investment by type
Source: The Bank of Korea (national accounts)
Economic Bulletin 13
4. Construction investment
Construction investment (preliminary GDP) in the second quarter of 2010 declined 3.6
percent quarter-on-quarter and 2.9 percent year-on-year.
(Percentage change from same period in previous year)
2008 2009 20101
Annual Q2 Q3 Q4 Annual Q1 Q2 Q3 Q4 Q1 Q2
Construction investment 2
-2.8 -0.5 0.4 -7.7 4.4 2.8 5.1 4.4 5.0 2.3 -2.9
(Seasonally adjusted)3 - -0.4 0.7 -3.3 - 5.9 1.8 -0.7 -0.1 1.3 -3.6
- Building construction -4.6 -0.8 0.2 -14.8 -1.8 -9.6 -2.4 1.2 2.5 1.7 -6.3
- Civil engineering works -0.2 -0.2 0.8 1.6 13.3 26.1 15.7 9.7 7.5 3.1 1.1
1. Preliminary
2. National accounts
3. Percentage change from previous period
Source: The Bank of Korea
Construction completed (constant value) in July, while rising 3.5 percent year-on-year, fell
3.2 percent month-on-month, as civil engineering works declined due to early fiscal
spending in the first half of 2010 and a high base effect produced by strong mid-year
performance.
14 September 2010
4-1 Construction investment
Source: The Bank of Korea (national accounts)
Economic Bulletin 15
5. Exports and imports
Exports in August continued a brisk pace as it rose 29.6 percent year-on-year to US$37.53
billion amid continuing global economic recovery. The value of total exports fell from the
previous month due to seasonal factors such as a drop in the number of working days
caused by summer vacation.
(US$ billion)
2008 2009 2010
Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 Jul Aug1
Exports 422.01 363.53 74.42 90.36 94.78 103.97 101.09 120.25 40.95 37.53
(y-o-y, %) 13.6 -13.9 -25.2 -21.1 -17.6 11.7 36.2 33.1 28.3 29.6
Average daily exports 1.53 1.30 1.10 1.30 1.32 1.49 1.51 1.76 1.67 1.56
Imports 435.27 323.09 71.42 73.97 84.85 92.85 98.11 105.90 35.44 35.45
(y-o-y, %) 22.0 -25.8 -32.7 -35.6 -31.0 1.4 37.4 43.1 28.0 29.3
Average daily imports 1.58 1.16 1.06 1.06 1.18 1.33 1.46 1.55 1.45 1.47
Source: Korea Customs Service
Imports in August rose 29.3 percent year-on-year to US$35.45 billion, as those of raw
materials, capital goods, and consumer goods continued to soar amid the recovering
economy. However, imports of raw materials increased at a slower rate due to falling unit
prices of crude oil.
The trade balance in August posted a surplus of US$2.08 billion, staying in the black for
seven straight months.
(US$ billion)
2008 2009 2010
Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 Jul Aug1
Trade Balance -13.27 40.45 3.00 16.39 9.94 11.12 2.98 14.44 5.51 2.08
Source: Korea Customs Service
16 September 2010
5-1 Exports (customs clearance basis)
Source: Korea Customs Service & Ministry of Knowledge Economy (export and import trend)
Economic Bulletin 17
6. Mining and manufacturing production
Mining and manufacturing production increased 1.1 percent in July from the previous month,
posting a month-on-month increase for the ninth consecutive month, while rising 15.5
percent year-on-year.
By business category, automobiles (up 6.8%) and semiconductors and parts (up 4.8%) were
up month-on-month, while clothing and fur (down 15.9%) and refined petroleum (down
8.3%) went down.
The average operation ratio of the manufacturing sector rose 0.9 percentage points from the
previous month to 84.8 percent, the highest since January 1980 when the statistics was first
produced.
Manufacturing Average operation ratio (%) 77.5 74.6 78.4 80.5 83.0 82.8 83.9 84.8
activity Production capacity 5.1 3.1 4.0 5.1 5.8 6.1 5.9 6.4
1. Preliminary
2. Including mining, manufacturing, electricity and gas industry
3. Information and Communications Technology
4. End-period
Source: Statistics Korea
Mining and manufacturing production in August is expected to stay at around the same level
as the previous month despite brisk exports, given the possible production adjustment due
to the recent inventory increase.
Exports (y-o-y, %)
36.0 (Q1 2010) 33.1 (Q2) 28.3 (Jul) 29.6 (Aug)
18 September 2010
6-1 Industrial production
Source: Statistics Korea (industrial activity trend)
6-3 Inventory
Source: Statistics Korea (industrial activity trend)
Economic Bulletin 19
7. Service sector activity
Despite robustness in hotels & restaurants and wholesale & retail sales, service activity in
July decreased 1.0 percent month-on-month as front-loaded fiscal spending dragged down
educational services and professional, scientific & technical services. It grew 3.4 percent
year-on-year.
By business category, hotels & restaurants (up 2.4%) and wholesale & retail sales (up 1.5%)
expanded month-on-month.
On the other hand, educational services (down 12.0%) and professional, scientific &
technical services (down 8.0%) went down significantly.
Service activity in August is expected to increase from the previous month as temporary
slowdown factors triggered by front-loaded fiscal spending in the first half have been
removed and a recovery in the job market took hold.
20 September 2010
7-1 Service industry
Source: Statistics Korea (service industry activity trend)
Economic Bulletin 21
8. Employment
The number of workers on payroll in July increased by 473,000 from a year earlier, while the
employment rate (seasonally adjusted) rose by 0.5 percentage points year-on-year to 59.1
percent.
By status of workers, wage workers (up 639,000) expanded growth as the number of regular
workers (up 72,500) continued to increase while temporary workers (down 40,000) and
daily workers (down 46,000) decelerated the decreasing pace. Non-wage workers (down
166,000) including self-employed workers (down 128,000) continued to decline.
22 September 2010
8-1 Number of employed and employment growth
Source: Statistics Korea (employment trend)
Economic Bulletin 23
The number of unemployed persons in July increased by 3,000 year-on-year to record
931,000 and the unemployment rate (seasonally adjusted) stood flat from a year earlier at
3.7 percent.
By age, the unemployment rate edged up among people in their 20s and 40s as well as
seniors aged 60 or more, albeit decreasing among other age brackets.
The unemployment for youths aged 15 to 29 stayed at a similar level to the previous month,
recording 8.5 percent.
The economically inactive population in July was up 14,000 from a year earlier to post
15,380,000. Meanwhile, the labor force participation rate was up 0.4 percentage points year-
on-year to 61.3 percent.
The number of workers quitting jobs due to childcare (down 141,000) and reasons such as
rest, time-off, and leisure (down 41,000) decreased. On the other hand, those who quit jobs
due to housework (up 175,000) and old age (up 62,000) increased.
24 September 2010
8-4 Employment rate
Source: Statistics Korea (employment trend)
Economic Bulletin 25
9. Financial market
9.1 Stock market
The Korean stock market in August fell with worries over slow global economic recovery. The
KOSPI on August 3 hit a record high of 1,790.6 points this year as investment sentiment
improved with the US ISM manufacturing index beating the expectations. After early August,
however, concerns over global economy spread as the US Federal Open Market Committee
(FOMC) downgraded the economic outlook and the US government released weak figures of
employment, consumer spending and home sales. Slowed second quarter GDP growth in
Japan added to concerns about the global economy.
For the first time in three months, foreign investors shifted to a net-selling position,
amounting to 0.6 trillion won, as uncertainties in the global economy boosted appetite for
safe assets.
The won/yen exchange rate was up 55.1 won month-on-month as heightened concerns over
global economic slowdown boosted appetite for safe assets, appreciating the yen.
(End-period)
2006 2007 2008 2009 2010
Dec Dec Dec Dec Jul Aug Change1
Won/Dollar 929.8 936.1 1,259.5 1,164.5 1,182.7 1,198.1 -1.3
Won/100Yen 783.4 828.6 1,396.8 1,264.5 1,368.7 1,423.8 -3.9
1. Appreciation from the end of the previous year (%); the exchange rate is based on the closing price at 3:00 p.m., local time.
26 September 2010
9-1 Stock prices
Economic Bulletin 27
9.3 Bond market
Treasury bond yields plummeted in August with lingering uncertainties over domestic and
overseas economies. Amid continuing worries over global economic slowdown spurred by
sluggish economic data in the US, China and Japan, the bond yields fell due to solid demand
for bonds with foreigners expanding their holding of long-term bonds.
(End-period)
2006 2007 2008 2009 2010
Dec Dec Dec Dec Jun Jul Aug Change1
Call rate (1 day) 4.60 5.02 3.02 2.01 2.03 2.28 2.28 0
CD (91 days) 4.86 5.82 3.93 2.88 2.46 2.63 2.66 3
Treasury bonds (3 yrs) 4.92 5.74 3.41 4.44 3.86 3.80 3.55 -25
Corporate bonds (3 yrs) 5.29 6.77 7.72 5.56 4.77 4.75 4.53 -22
Treasury bonds (5 yrs) 5.00 5.78 3.77 4.98 4.44 4.38 4.00 -38
1. Basis point changes in May 2010 from the previous month
In July, bank deposits continued to expand while asset management company (AMC)
deposits decreased. Bank deposits maintained the upward pace as the volume of time
deposits increased due to higher interest rates following the key interest rate hike. Asset
management company (AMC) deposits decreased significantly as VAT payments were made
and fund inflows into money market funds (MMFs) were down. Increased redemption in
equity funds with stock market rallies also contributed to a fall in AMC deposits.
28 September 2010
9-4 Interest rates
Source: The Bank of Korea
Economic Bulletin 29
10. Balance of payments
Korea’s current account surplus expanded in July to record US$5.88 billion thanks to robust
exports.
The goods account accelerated the surplus to post US$7.38 billion from the previous
month’s US$6.35 billion due to robust exports of semiconductors and cars and expanded
payments received for the delivery of exported ships.
The service account deficit held steady to post US$1.66 billion from the previous month’s
deficit of US$1.67 billion due to decreased payments for loyalties and business services
although the travel account deficit expanded.
The income account surplus expanded to US$440 million from US$330 million a month
earlier while the current transfer account shifted to a deficit of US$230 million from the
previous month’s US$30 million surplus.
(US$ billion)
2008 2009 2010
Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 Jun Jul Jan-Jul
Current account -5.78 42.67 8.62 13.10 10.40 10.56 1.34 10.28 5.10 5.88 17.55
- Goods balance 5.67 56.13 8.31 17.58 14.70 15.54 7.43 15.65 6.41 7.38 30.53
- Service balance -16.67 -17.20 -1.93 -4.17 -5.33 -5.77 -6.04 -4.17 -1.67 -1.66 -11.87
- Income balance 5.90 4.55 0.92 0.29 1.69 1.65 0.76 -0.75 0.33 0.44 0.44
- Current transfers -0.67 -0.81 1.31 -0.60 -0.66 -0.86 -0.81 -0.45 0.03 -0.28 -1.55
Source: The Bank of Korea
Although banks’ repayments of loan increased, the capital and financial account in July
contracted the deficit as foreign investors’ net-buying of Korean shares and bonds rose.
The direct investment account increased the net outflow to register US$1.9 billion from the
previous month’s deficit of US$470 million as locals’ overseas investment increased.
The portfolio investment account significantly expanded the net inflow to US$8.63 billion
from US$1.89 a month earlier as foreigners bought more shares with expectations of Korea’s
economic recovery.
The financial derivatives account deficit shrank to post US$80 million from the previous
month’s net outflow of US$450 million as losses from overseas financial derivative
transactions decreased.
The other investment account deficit expanded to US$6.7 billion from the previous month’s
deficit of US$2.25 billion as banks’ repayments of short-term loan increased.
The current account surplus in August is likely to decrease from the previous month to record
around US$1.5 billion due to the contracting goods account surplus.
30 September 2010
10-1 Current account balance
Source: The Bank of Korea (balance of payments trend)
Economic Bulletin 31
11. Prices and international commodity prices
11.1 Prices
Despite stabilized prices of industrial products, consumer prices in August increased 2.6
percent year-on-year and 0.3 percent month-on-month as prices of agricultural and livestock
products and public utility charges increased.
Core consumer prices, which exclude the prices of oil and agricultural products continued to
stabilize with a year-on-year increase of 1.8 percent. Consumer prices for basic necessities, a
barometer for perceived consumer prices, were up 2.6 percent compared to the same month of
the previous year.
Although prices of livestock products stabilized with supply expansion, prices of agricultural
and livestock products soared as seasonal factors including bad weather conditions pushed
up prices for vegetables and fruits.
Despite higher prices of some processed foods including sugar, overall prices of industrial
products remained stable as prices of oil products fell.
International oil prices (Dubai crude, US$/barrel)
73.6 (Feb 2010) 77.3 (Mar) 83.6 (Apr) 76.8 (May) 74.1 (Jun) 72.6 (Jul) 74.1 (Aug)
Won/dollar exchange rate (average)
1,157 (Feb 2010) 1,138 (Mar) 1,117 (Apr) 1,163 (May) 1,212 (Jun) 1,207 (Jul) 1,180 (Aug)
Public utility charges in August edged up from the previous month as the government raised
electricity charges (up 2.0%) and other public utility charges. Personal service charges have
risen for two consecutive months with an increase of 0.2 percent month-on-month.
32 September 2010
11-1 Prices
Source: Statistics Korea (consumer prices, core inflation) & The Bank of Korea (producer prices)
Economic Bulletin 33
11.2. International oil and commodity prices
In August, international oil prices inched up month-on-month while domestic oil product
prices edged down from the previous month.
International oil prices (Dubai crude) in early August advanced up to the upper US$70 range
as uncertainties over fiscal problems in the southern Europe eased. The increase, however,
was limited during the month due to concerns over the possible slowdown of economic
recovery in the US and other major countries.
(US$/barrel, period average)
2007 2008 2009 2010
Annual Annual Annual Feb Mar Apr May Jun Jul Aug
Dubai crude 68.4 94.3 61.9 73.6 77.3 83.6 76.8 74.1 72.6 74.1
Brent crude 72.8 97.5 61.7 73.9 79.0 84.8 75.2 74.9 75.7 77.2
WTI crude 72.3 99.9 61.9 76.5 81.3 84.5 73.7 75.3 76.3 76.6
Source: KOREAPDS
Although prices of international oil and oil products increased slightly, domestic prices of oil
products edged down month-on-month as the won’s value against the dollar stabilized.
Prices of non-ferrous metals and grain in August increased due to robust demand in
emerging markets such as China and concerns over supply disruption in major grain
producing countries hit by aggravating weather conditions.
Despite uncertainties over the pace of global economic recovery, prices of major non-ferrous
metals such as tin and copper increased as China’s demand for the metals remained strong.
International prices of grain including wheat hiked with concerns over supply shortage due
to a severe drought and the consequent ban on grain exports in Russia.
34 September 2010
11-4 International oil prices
Source: Korea National Oil Corporation
Economic Bulletin 35
12. Real estate market
12.1 Housing market
In August, nationwide apartment sales prices decreased 0.03 percent month-on-month.
Apartment sales prices in the Seoul metropolitan area fell for the fifth consecutive month in
August with a 0.5 percent decrease as market sentiment remained chilled. Apartment prices
of Seoul retreated 0.5 percent in August while those in Gyeonggi province and Incheon
decreased 0.6 percent and 0.3 percent, respectively.
Meanwhile, apartment sales prices in areas excluding the Seoul metropolitan area
continued to increase led by South Gyeongsang province (up 0.9%), Busan (up 0.8%) and
North Jeolla province (up 0.6%). Apartment prices in 5 metropolitan cities and other cities
advanced 0.4 percent from a month earlier.
Apartment rental prices in August were up 0.4 percent month-on-month led by areas
excluding the Seoul metropolitan area due to strong seasonal demand during school
vacation. In the Seoul metropolitan area, however, apartment rental prices remained stable
with contracted transactions.
Apartment sales transactions in July declined 5.1 percent from 65,197 a month earlier to post
61,878. The transactions were down 31.7 percent from a year earlier and 23.4 percent
compared with the monthly average of 81,000 recorded in the same month for the past 3
years.
36 September 2010
12-1 Real estate prices
Source: Kookmin Bank (national housing price trend)
Economic Bulletin 37
12.2 Land market
Nationwide land prices in July remained unchanged month-on-month halting the upward
trend in previous months. Land prices in July were 2.26 percent lower than the pre-crisis
peak reached in October 2008.
Land prices in the Seoul metropolitan area fell 0.04 percent from the previous month as
Seoul (down 0.07%) accelerated the downward pace while Gyeonggi province (down
0.07%) and Incheon (down 0.07%) shifted to a decrease for the first time in 16 months.
Also, land price increases in areas excluding the Seoul metropolitan area are steadily
decelerating.
Nationwide land transactions in July recorded 171,000 land lots, down 6.6 percent from the
previous month, which is equivalent to 78.0 percent of a monthly average of 220,000 in the
same month of the past 5 years.
Land transactions decreased in all areas excluding North Gyeongsang province (up 23.4%)
and South Jeolla province (up 9.3%) in terms of land lots.
38 September 2010
12-4 Land and consumer prices since 1970s
Source: Korea Land Corporation (land prices) & Statistics Korea (consumer prices)
Economic Bulletin 39
13. Composite indices of business cycle indicators
The cyclical indicator of coincident composite index increased 0.5 points month-on-month in
July, showing the continuous upward trend of the economy since March 2009.
Among components of coincident composite index, only the service activity index decreased
while the other seven components such as the value of construction completed and the
wholesale & retail sales index increased.
The year-on-year leading composite index in July climbed 0.8 percentage points from the
previous month but declined by 0.4 percentage point year-on-year due to last year’s high
base effect.
Only the indicator of inventory cycle of the index went down, while the other seven
components such as the value of construction orders received, the value of machinery
orders received, and the value of capital goods imports were up.
2010
Jan Feb Mar Apr1 May1 Jun1 Jul1
Coincident composite index (m-o-m, %) 0.8 1.2 0.9 0.9 0.7 0.8 0.9
Cyclical indicator of coincident composite index 99.3 100.0 100.6 101.1 101.4 101.7 102.2
(m-o-m, p) 0.4 0.7 0.6 0.5 0.3 0.3 0.5
Leading composite index (m-o-m, %) 0.3 -0.2 0.2 -0.2 0.5 0.4 0.8
12 month smoothed change
in leading composite index (%) 11.3 10.3 9.7 8.6 7.9 7.1 6.7
40 September 2010
13-1 Cyclical indicator of coincident composite index
Source: Statistics Korea
Economic Bulletin 41
Policy Issues
2010 Tax Revision
Background
Although the Korean economy posted a 7.6 percent growth in the first half of 2010, the fruit
of the economic performance has not trickled down enough to the real economy. Against
this backdrop, the Korean government prioritizes creating jobs and supporting the working
class in revising the tax system : Corporations creating jobs will be given tax incentives, non-
essential tax exemptions and reductions will be lifted to improve fiscal situation as there
have been worries over narrowing tax base and welfare spending will be increased to
prepare for an ageing society. In addition, the government revises the tax system in a way to
avoid tax evasion.
Key revisions
First, tax incentives are given to the companies creating jobs: 1) investment tax credit to be
given on the basis of the number of people hired rather than on the basis of the amount of
money invested, 2) up to 20 percent of tax reduction for the investment given to enterprises
and those with FDI if they increase hiring, 3) industries with a significant labor-inducing
effect to be added to the list of SMEs eligible for tax incentives, and 4) companies closing
overseas business and returning to Korea to be offered income and corporate tax reductions
at the same level as given to companies with FDI.
42 September 2010
Second, the tax revision is directed toward trickling down the economic recovery to the
working class: 1) withholding tax rate for low income daily workers to be reduced from eight
percent to six percent, 2) the tax deductions for small-and medium-sized businesses, such
as credit card sales tax deduction and VAT deduction for restaurant owners on their
purchase of agricultural and marine products, not to sunset until 2012, 3) new tax deduction
to be introduced on the funds set up to guarantee cooperation between conglomerates and
SMEs, 4) a sunset clause on tax credit given to companies offering cash settlement to SMEs
to be extened until 2013, and 5) income tax deduction ceilings for donation to be raised.
Third, the tax revision is aimed at supporting sustainable growth by nurturing new growth
engines and increasing support to raise corporate competitiveness, and preparing for an
ageing society: 1) R&D tax credit to be expanded to cover 3D technologies, next generation
LCD technologies, and IT convergence technologies, 2) reduced tariff rates to be applied to
the imports of materials and parts used in new growth engine related industries, 3)
corporate restructuring-related tax incentives to be extended, 4) child tax credit given to
households with more than two children to be doubled, and 5) tax credit for retirement
pension and savings to be increased.
Fourth, the tax revision is aimed at broadening the tax base by withdrawing unnecessary tax
exemptions and reductions: 1) 16 out of 50 tax exemptions and reductions to expire, 2) sales
tax credit for the reported sales increase to be abolished and tax exemptions for dividend
yields given to long-term stock owners to sunset, 3) those who earn more than 0.5 billion
won annually subject to bookkeeping investigation by tax accountants, and 4) VATs to be
imposed on aesthetic plastic surgeries, veterinarian treatment, and private educational
institutions for adults.
Details of measure
The current investment-centered tax incentives will be changed into tax incentives to
support job creation, with which companies actively creating jobs will receive incentives.
Economic Bulletin 43
may be a deterrent to job creation.
- SMEs will be encouraged to expand flexible work hours with the different method to count
part-time workers.
- To help family businesses keep hiring at the time of inheritance, the scope of and
requirement for inheritance tax exemptions will be expanded and eased.
44 September 2010
3. Supporting small- and medium-sized businesses
- Tax deduction for credit card payment will be extended from the end of 2010 to the end of
2012 to reduce the tax burden on small to medium sized businesses including
accommodations and restaurants. Restaurants will be eligible for deemed input VAT until
the end of 2012.
- When small business owners who gave up their businesses restart business or get jobs,
they are eligible for income tax or VAT exemptions of up to 5 million won applied to those
without any property, and the tax exemption will be extended until the end of 2012.
5. Encouraging donations
- Income tax deduction rates for donations will be simplified from three levels to two levels,
along with deduction ceilings for donations being raised from 20 percent of the donation to
30 percent for private donations and from 5 percent to 10 for corporate donations.
- Bona fide stock donations made through non-profit organizations will be exempted from
donation taxes even when the donation exceeds the share holding limitation on one
company.
Economic Bulletin 45
technologies such as carbon reduction and environment-friendly vehicles becoming eligible
for foreign investment tax reduction if conditions are met.
- The VAT exemption for research services by Industry-Academic Cooperation Foundation in
universities will be extended until the end of 2013.
- The tax deduction of 3 percent for overseas resources development investment and that of
7 percent for facility investment to improve pharmaceutical quality control will be extended
until the end of 2013.
46 September 2010
2012, if conditions are met: the owners need to accept credit cards, issue receipts for cash
payment, use double-entry bookkeeping, and honestly report their income. In addition, if
those responsible for double-entry bookkeeping do not practice what is required, they will
be subject to more tax with halved tax reduction for essential business expenses.
- The tax rate applied to business owners for not issuing receipts will be increased from
additional 1 percent to 2 percent, while those who make fake receipts are subject to 2
percent additional tax.
- Those who write fake contracts to avoid the real estate transfer tax will not be eligible for
tax exemption or reduction related to the transactions, which will help the reporting of real
estate transaction based on market price take hold.
Economic Bulletin 47
Economic
News Briefing
On August 30, the International Monetary Fund (IMF) expanded and enhanced its lending
facilities to help prevent financial crises. As part of the efforts to enhance the organization’s
crisis-prevention mechanism, the IMF decided to double the duration of the credit line,
remove the cap on lending under the existing Flexible Credit Line (FCL) and establish a new
Precautionary Credit Line (PCL) for members with sound policies who nevertheless may not
meet the FCL’s high qualification requirements. These reforms come as the G-20 has made
the strengthening of the global financial safety net one of the agenda items for the G-20
Summit in November. The Korean government has taken a leading role in advancing this issue.
Korea’s real GDP grew 1.4 percent in the second quarter of 2010 (preliminary) compared to
the previous quarter. This is a 0.1 percentage point downward revision from the advance
estimates released on July 26.
48 September 2010
On the production side, the manufacturing sector was up 5.2 percent from the previous
quarter thanks to the growth in machinery equipment, fabricated metal products and
automobile manufacturing. On the expenditure side, private consumption rose by 0.8 percent
while facility investment and exports of goods continued robust growth by increasing 9.1
percent and 7.0 percent, respectively.
The International Monetary Fund (IMF) on September 1 upgraded its 2010 growth forecast
for the Korean economy to 6.1 percent from 5.75 percent projected in July. The IMF assessed
that Korea’s growth has rebounded impressively since the global recession in the second
half of 2008 primarily thanks to supportive macroeconomic and financial sector policies.
According to the organization, inflationary pressures and asset prices in Korea remain
although capital inflows have rebounded with the country and other Asian economies
leading the global economic recovery. In addition, Korean banks have raised their average
capital adequacy ratio to 14.6 percent, up 2 percentage points from the pre-crisis level and
foreign exchange reserves have risen by close to US$75 billion from their lows during the
crisis, standing at US$274 billion as of the end of June 2010.
Economic Bulletin 49
Korea and Bolivia hold summit in Seoul
President Lee Myung-bak and Bolivian President Juan Evo Morales Ayma held a summit in
Seoul on August 26, 2010. At the summit, the Presidents had discussions on ways to
enhance cooperation in various areas such as trade and investment, resources and
industrial development as well as international affairs. In particular, the two presidents
signed a memorandum of understanding (MOU) on the research and development of the
lithium reserve in Bolivia, which is expected to contribute to a stable supply of lithium to
Korea.
On August 30, Korea and Peru finalized the free trade agreement (FTA) after five rounds of
negotiations that started in March 2009. Under the trade deal, all tariffs between the two
nations will be eliminated within 10 years. The two countries acknowledged that the Korea-
Peru FTA creates an institutional framework and favorable environment for trade and
investment, providing better market access as well as giving incentives to promote foreign
direct investment (FDI). Both sides agreed to promptly proceed with initialing, signing, and
other follow-up measures to bring the Korea-Peru FTA into effect.
50 September 2010
Korea offers more incentives to enhance free economic zones
For instance, each FEZ will be required to sell or lease at least 10 percent of its industrial
sites to foreign firms. Currently, only foreign firms in manufacturing, tourism, distribution,
medical services and research & development are offered this benefit. The government also
plans to include engineering and IT businesses in industrial sectors eligible for tax
reductions for foreign investing firms. In addition, the government will ease regulations on
foreign education and medical facilities in the FEZs.
Korea unveiled a package of policy measures to bolster the housing market on August 29.
According to the plan, the debt-to-income ratio (DTI) restriction will be temporarily
suspended until March 2011 for those who own only one residence or none and plan to buy a
home costing no more than 900 million won outside the three speculative districts in
southern Seoul. In addition, the waiver for capital gain tax will be extended for two years
until 2012 and low rates for acquisition & registration tax will be maintained for one
additional year.
The government will also provide up to 200 million won in low interest loans for first-time
home buyers and expand the amount of easy loans provided to those who look for rental
homes. Meanwhile, the government will issue 3 trillion won worth of primary collateralized
bond obligations (P-CBO) and collateralized loan obligations (CLO) to help small-sized
construction companies avoid temporary financial distress.
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 indices of business cycle indicators and BSI
9. Balance of payments (I)
10. Balance of payments (II)
11. Prices
12. Employment
13. Financial indicators
14. Monetary indicators
15. Exchange rates
Economic Bulletin 53
1. National accounts
(year-on-year change, %, chained 2005 year prices)
P: Preliminary
Source: The Bank of Korea
54 September 2010
Growth rate by economic activity
Economic Bulletin 55
2. Production, shipment and inventory See graphs 6-1, 6-3, 7-1, 7-2 & 7-3
(constant prices, 2005 = 100)
Service
Production Shipment Inventory
Period Y-o-Y Y-o-Y Y-o-Y production Y-o-Y
index index index
change (%) change (%) change (%) index change (%)
56 September 2010
3. Production capacity and operation ratio See graph 6-2
Economic Bulletin 57
4. Consumer goods sales index See graphs 2-2, 2-3, 2-4 & 2-5
(constant prices, 2005 = 100)
Consumer
goods
Period Durable Semi-durable Non-durable
sales
Y-o-Y goods Y-o-Y goods Y-o-Y goods Y-o-Y
index
change (%) change (%) change (%) change (%)
P: Preliminary
Source: Statistics Korea
58 September 2010
5. Consumer goods shipment index and consumer sentiment index
See graph 2-6
Domestic consumer
goods shipment index Consumer
Period (2005=100) Durable Non-durable sentiment index
Y-o-Y goods Y-o-Y goods Y-o-Y
change (%) change (%) change (%)
Economic Bulletin 59
6. Machinery orders received, domestic machinery shipment
and estimated facility investment index See graph 3-2
Domestic machinery orders received Domestic
Estimated
excluding ship (billion won, constant prices) machinery
facility investment
Period shipment
index
excluding ship
Total Public Private (2005=100)
Manufacturing (2005=100)
60 September 2010
7. Value of construction completed and domestic construction
orders received See graphs 4-2 & 4-3
(current prices, billion won)
Economic Bulletin 61
8. Composite indices of business cycle indicators and BSI
See graphs 13-1, 13-2 & 13-3
Cycle of
Leading Coincident
coincident
Period index Y-o-Y index BSI (results) BSI (prospects)
index
(2005=100) change (%) (2005=100)
(2005=100)
P: Preliminary
Source: Statistics Korea & The Federation of Korean Industries
62 September 2010
9. Balance of payments (I) See graphs 5-1, 5-2, 5-3, 10-1 & 10-2
(million US$)
Economic Bulletin 63
10. Balance of payments (II) See graph 10-3
(million US$)
P: Preliminary
Source: The Bank of Korea
64 September 2010
11. Prices See graphs 11-1, 11-2 & 11-3
(2005 = 100)
Producer prices
Consumer prices Export & import prices
(2005=100)
Period
All Items Commodity Service Core All items Commodity Export Import
Economic Bulletin 65
12. Employment See graphs 8-1, 8-2 & 8-3
2008 7 24,673 23,903 3,975 18,088 3.1 16,363 9,054 5,163 2,146
8 24,380 23,617 3,899 17,872 3.1 16,104 9,107 4,970 2,027
9 24,456 23,734 3,928 17,951 3.0 16,221 9,142 5,015 2,064
10 24,582 23,847 3,945 18,005 3.0 16,314 9,138 5,034 2,142
11 24,566 23,816 3,897 18,086 3.1 16,377 9,111 5,071 2,195
12 24,032 23,245 3,888 17,935 3.3 16,189 9,068 5,082 2,040
2009 1 23,709 22,861 3,895 17,663 3.6 16,053 9,102 4,982 1,969
2 23,667 22,742 3,842 17,539 3.9 15,953 9,194 4,862 1,897
3 24,062 23,110 3,813 17,701 4.0 16,076 9,174 4,941 1,961
4 24,456 23,524 3,846 17,899 3.8 16,353 9,227 5,051 2,076
5 24,658 23,720 3,846 18,016 3.8 16,484 9,316 5,076 2,092
6 24,927 23,967 3,836 18,251 3.9 16,736 9,340 5,281 2,115
7 24,756 23,828 3,802 18,210 3.7 16,589 9,383 5,255 1,952
8 24,525 23,620 3,761 18,048 3.7 16,479 9,472 5,117 1,890
9 24,630 23,805 3,810 18,155 3.4 16,687 9,606 5,151 1,931
10 24,655 23,856 3,858 18,130 3.2 16,690 9,628 5,170 1,892
11 24,625 23,806 3,855 18,267 3.3 16,790 9,603 5,256 1,931
12 24,063 23,229 3,872 18,104 3.5 16,555 9,632 5,074 4,860
2010 1 24,082 22,865 3,924 17,796 5.0 16,297 9,712 4,860 1,725
2 24,035 22,867 3,886 17,762 4.9 16,282 9,786 4,838 1,657
3 24,382 23,377 3,924 18,047 4.1 16,617 9,926 4,976 1,714
4 24,858 23,924 3,991 18,285 3.8 16,994 10,011 5,147 1,836
5 25,099 24,306 4,036 18,499 3.2 17,255 10,078 5,223 1,953
6 25,158 24,280 4,017 18,422 3.5 17,193 10,089 5,165 1,938
7 25,232 24,301 4,040 18,489 3.7 17,228 10,107 5,215 1,905
Y-o-Y change (%)
2008 0.5 0.6 -1.3 1.3 - 1.5 4.5 -1.8 -2.6
2009 0.2 -0.3 -3.2 0.5 - 1.5 4.3 0.4 -7.4
66 September 2010
13. Financial indicators See graphs 9-1 & 9-4
(period average)
Economic Bulletin 67
14. Monetary indicators See graph 9-5
(period average) (billion won)
68 September 2010
15. Exchange rates See graphs 9-2 & 9-3
Economic Bulletin 69
Editor-in-Chief
Yoon, Yeo-Kwon (MOSF)
Editorial Board
Kim, Young-Min (MOSF)
Shim, Jae-Hak (KDI)
Lee, In-Sook (KDI)
Coordinators
Kim, Dae-Hyun (MOSF)
Cho, Hyun-Joo (KDI)
Editors
Lim, Keun-Hyuk (MOSF)
Kang, Ji-Eun (KDI)
Ministry of Labor
http://english.molab.go.kr/english
Statistics Korea
http://kostat.go.kr