PRESS RELEASE

Research Department

October 10, 2013

Economic Outlook for 2013 and 2014

. Future Economic Prospects

< Basic Assumptions of Economic Forecasts >
2012 2013
e)

2014

e)

Global economic growth (%) United States Japan Euro area China

1)

3.2 2.8 2.0 -0.6 7.7

3.1 1.6 2.0 -0.4 7.6

3.6 2.6 1.4 1.0 7.6

Global trade growth (%) Oil import unit price (US dollars per barrel)

1)

2.8

3.8

5.3

2)

113
1)

107

102

Other raw material price changes (%)

-9.8

-1.0

0.0

Notes: 1) Year-on-year rates of change. 2) Proportions of oil imports (period average, CIF basis): 80% from Middle East, 20% from other regions.

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1. Economic Growth

The GDP growth rate for 2013 is projected to be 2.8%, the same as originally predicted in July (1.9% in the first half

3.6% in the second half).

For 2014, growth is forecast at 3.8%.

The details by expenditure sector on the demand side are as follows: While private consumption is expected to maintain a modest expansion, helped by improvements in income conditions and in consumer confidence, the household debt burden and high leasehold deposit prices may work as factors limiting the consumption recovery. Facilities investment is expected to show an uptrend, on the strength of the global economic recovery and the improvement in investment sentiment. Construction investment is also forecast to continue its uptrend seen this year, but its rate of growth is expected to slow in 2014, affected for example by a slump in construction work orders

and a decline in SOC investment. Exports next year are forecast to increase at a pace faster than this year, as world trade gradually picks up.

Economic Growth Forecasts

(year-on-year, %)

2012 Year GDP Private consumption Facilities investment Construction investment Goods exports Goods imports 3.8 1.5 5.3 3.3 -2.2 5.2 -1.9 -8.2 2.0 1.7 H1 1.9 1.6

2013 H2
e)

2014 Year 2.8 <2.8> 1.9 <2.1> -1.2 <1.8> 6.1 <4.5> 5.5 <5.1> 3.8 <3.2>
e)

e)

H1 3.9 3.3 7.8 1.9 4.8 3.8

H2 3.7 3.3 3.8 1.5 9.4 9.8

Year 3.8 <4.0> 3.3 <3.5> 5.7 <7.0> 1.7 <2.0> 7.2 <8.0> 6.9 <7.8>

3.6 2.1 6.3 6.9 5.7 4.3

Note: Figures in < > are July 2013 forecasts.

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2. Employment

The number of persons employed is projected to increase by 330 thousand in 2013, a slightly larger rise than the increase of 320 thousand persons forecast in July (380 thousand
in 2014).

The unemployment rate is projected at 3.2%, and the employment rate at 59.5% (64.5% on an OECD basis).

Prospects for Employment

(10,000 persons, %)

2012 Year Changes in number of persons employed

1), 2)

2013 H1 29 H2
e)

2014 Year 33 <32>

e)

e)

H1 40

H2 37

Year 38 <40>

44

37

(1.8) 3.2

(1.2) 3.4

(1.5) 3.0

(1.3) 3.2 <3.2>

(1.6) 3.2

(1.4) 2.9

(1.5) 3.0 <2.8>

Unemployment rate
2)

(S.A.) employmentpopulation ratio

3)

59.4 [64.2]

3.2 59.0 [63.9]

3.1 60.0 [65.0]

59.5 [64.5]

3.1 59.1 [64.8]

3.0 60.2 [65.6]

59.7 [65.2]

Notes: 1) Year-on-year changes; figures in ( ) are the year-on-year rates of increase (%). 2) Figures in < > are July 2013 forecasts. 3) 15 years & over; figures in [ ] are for the 15 to 64 years of age group

(OECD basis).

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3. Prices

The rate of increase in the headline consumer price index (CPI) is forecast to stand at an annual average of 1.2% for 2013, lower than the July forecast of 1.7% (2.5% for 2014).

The index with institutional factors such as free school meal and childcare costs excluded is forecast to stand at 1.6%, that excluding agricultural and petroleum product prices at 1.5%, and that excluding food and energy prices at 1.3%.

Price Outlook
(year-on-year, %)

2012 Year Headline consumer price inflation Excluding school meal and childcare costs
1)

2013 H1 1.3 H2
e)

2014 Year 1.2 <1.7>

e)

e)

H1 2.0

H2 2.9

Year 2.5 <2.9>

2.2

1.2

2.7

1.7

1.6

1.6 <2.1>

2.2

2.9

2.6 <3.0>

Excluding agricultural and petroleum Core inflation product prices Excluding food and energy prices

1.6

1.4

1.6

1.5 <1.8>

2.5

3.1

2.7 <3.0>

1.6

1.3

1.4

1.3 <1.6>

2.0

2.5

2.3 <2.5>

Notes: 1) The consumer price index estimated by stripping out the sub-indices for school meal and childcare costs (preschool tuition and daycare facility charges), which are influenced by institutional factors. 2) Figures in < > are July 2013 forecasts.

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4. Current Account

The current account surplus for 2013 is now predicted to be larger than that forecast in July (53.0 billion dollars), at 63.0 billion dollars (29.8 billion dollars in H1
H2).

33.2 billion dollars in

For 2014, the surplus is forecast to be around 45.0 billion dollars.

Current Account Outlook

(100 million dollars)

2012 Year Current account Goods account Exports (customs cleared) Imports (customs cleared) 431 383 H1 298 252

2013 H2
e)

2014 Year
e)

e)

H1 200 185

H2 250 215

Year 450 <380> 400 <380>

332 288

630 <530> 540 <460>

5,479 (-1.3) 5,196 (-0.9)

2,765 (0.6) 2,566 (-2.9)

2,865 (5.0) 2,635 (3.1)

5,630 (2.8) 5,200 (0.1)

2,960 (7.0) 2,820 (9.9)

3,100 (8.2) 2,910 (10.4)

6,060 (7.6) 5,730 (10.2)

Services primary transfer income

48

46

44

90

15

35

50

Services account

27

33

17

50

15

15

30

Notes: 1) Figures in ( ) are year-on-year rates of increase (%). 2) Figures in < > are July 2013 forecasts.

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. Overall Assessment
(Economic Growth)

The Korean economy is expected to sustain its trend of recovery, and to post rate of growth (year-on-year) in the mid-to-upper 3% range in the second half of this year.

GDP is expected to grow at the level of the potential growth rate in 2014, boosted chiefly by the global economic recovery and by increases in consumption and investment. Looking at the sectoral contributions to growth on the expenditure side, the contribution of domestic demand is likely to expand relatively faster than that of exports.

GDP Growth Projection

Net Contributions to Growth

(%, %p)

2011

2012 2013 2.0 1.3 0.7 2.8 1.5 1.2

e)

2014 3.8 2.0 1.8

e)

GDP
Exports Domestic demand

3.7 2.1 1.5

Note: The import inducement effects as seen in the Input-Output Tables are stripped from each sector.

The rate of growth (4.4%) of gross domestic income (GDI) will outstrip that (3.8%) of GDP in 2014, as in 2013, owing to the improvements in the terms of trade as a result of unit import price stability caused for example by the decline in international oil prices.

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Meanwhile, the downward adjustment of the GDP growth forecast for 2014 is attributable mainly to factors such as the downward adjustments of world economic and global trade growth, and the rise in the unit import price of crude oil.

GDI & GDP Growth Rates

Comparison with Previous Outlook

(Prices)

International commodity prices will show stable trends, but high inflation expectations for example may act as destabilizing factors amid a gradual weakening of downward pressures on the demand side.

While the international prices of commodities including crude oil will remain stable, agricultural product prices are expected to rise due mainly to reductions in the areas under cultivation for vegetables whose prices have fallen this year.

The negative GDP gap has been narrowing since the second half of this year, and inflation expectations (of the general
public) remain at around 3%.

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Comparison with Previous Outlook

Future Price Path

(Current Account)

The ratio of the current account surplus to GDP is projected to rise from 3.8 percent in 2012 to 5.2~5.3 percent in 2013, before then falling to 3.5~3.6 percent in 2014.

The current account forecast has been adjusted upward, in line largely with the increase in the goods account surplus reflecting the strong performance during the January~August period (a surplus of 36.2 billion dollars).

Current Account-to-GDP Ratio

Comparison with Previous Outlook

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In terms of the future growth path, there are both upside risks including of accelerations in the paces of growth in developed economies due to improvements in private sector competitiveness, and downside risks stemming for example from the uncertainties related to QE tapering by the US Federal Reserve, to the US government budget and debt ceiling negotiations and to the instability of oil prices in line with geopolitical risks in the Middle East. However, the downside risks predominate.

As for the price path, there are upside risks such as of a jump in agricultural product prices caused by bad weather conditions, as well as downside risks including of declines in international commodity prices due to a slowdown in the global economic recovery, with the downside risks

predominating.

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