Korea’s Economic Trends

Both the government and the Bank of Korea showed concerns over the current economic situations.

“Employment recovery in wholesale, retail, and construction was not quick enough in May,” said Deputy Prime Minister and Minister of Finance and Economy Lee Hun-jai at the regular briefing in Gwacheon Government Complex on June 18. He added, “To the disappointment of our hopes that domestic consumption will recover, it still remains in a trough.”

As for international oil prices, Deputy Prime Minister Lee said, “Although international oil prices are no longer going up steadily, they still remain high. It seems that the prices will not easily drop and become stable.”

He explained, “Except for government spending, we have not seen vigorous improvement in spending by households and companies.” “To provide momentum for the recovery of domestic consumption, the government decided to expand fiscal spending worth 4.5 trillion won, including two trillion won of supplementary budget,” the minister added.

The finance minister also said, “However, we remain firm in that domestic consumption will slowly recover as of the end of the second quarter (April to June). Although the recovery has not been as vibrant as expected, the ministry will not be hasty or confused. We will confidently implement policies prepared since early this year.”

The Bank of Korea released the “Recent Domestic and International Economic Trends” report on the same day and announced, “Since the second quarter of 2003, domestic consumption and facilities investment continued to fall for four consecutive quarters as of the first quarter of 2004 (January to March), while there are still no signs of recovery in the second quarter of 2004”

In the report, the central bank analyzed, “Companies are postponing investments and there are no signs of recovery in domestic consumption. While companies feel that the economy is sluggish, there are several potential domestic and international uncertainties in the second half of this year.”

Unlike the bank’s previous position that the economy is expected to show signs of recovery as of the second quarter this year and vigorously recover in the second half, the central bank did not make any predictions on when the economy will recover in the new report.

The Korean economy might record a decline of consumption and facilities investments for five consecutive quarters for the first time since the financial crisis, if they record lower in the second quarter of 2004 than the level of the same period last year.

According to the Bank of Korea, domestic consumption marked decline for five quarters in a row from the fourth quarter of 1997 (October to December) to the fourth quarter of 1998 while facilities investment showed a negative growth for six quarters consecutively from the third quarter of 1997 (July to September) to the fourth quarter of 1998.

Chi-Young Shin Suk-Ho Shin higgledy@donga.com kyle@donga.com