The Korean peninsula faces a worse year in 2007 than in 2006. Growth will slow in South Korea, the political climate will become increasingly fraught in the run-up to elections and the North Korean nuclear issue will remain unresolved.
South Korea’s GDP growth of around 5% in 2006 will slow to around 4.4% in 2007. The Bank of Korea (BoK) sees export growth falling to 10.8% from 12.9% in 2006, while facilities investment will grow by 6%, down from 7.4% in 2006. Private spending will also ease, from 4.2% growth in 2006 to 4.0% in 2007.
Positive trends are likely to be outweighed by a slew of negatives, and current robust indicators in areas such as exports and consumer confidence risk are being overtaken by the continuing appreciation of the won, high oil prices, a potential property price collapse in Seoul and uncertainty over North Korea. [read full article]