Korea’s Economy In 2005

There was a large difference between economic indicators and the economic situation felt by people, and economic bipolarization worsened in each sector of society in 2005.

While real gross domestic production growth increased from 2.7 percent in the first quarter to 3.3 percent in the second quarter and 4.4 percent in the third quarter, consumers did not feel the economic recovery. That is because the wholesale and retail industry, the restaurant and lodging industry, and the construction sector, which account for about 30 percent of those who employed, were sluggish.

There was also bipolarization between export companies and companies catering to domestic customers. While exports expanded 12.3 percent from last year, consumption in the private sector grew only 3.1 percent.

Song Tae-jung, a researcher at the LG Economic Research Institute, said, “As a restructuring of the self-employed sector has not been done sufficiently, there were no sign of economic recovery in the eyes of the self-employed and consumers in the lower income bracket.”

There was little increase in income, either.

The gross national income growth rate remained into the zero percent range from the first to the third quarter this year. That was because export prices dropped due to increased competition over prices in the global market, while import prices soared.

The economic growth rate stood into the 3.8 to 3.9 percent range, continuing its slow growth in the less than five percent range for three consecutive years since 2003.

With continuing difficulty in finding jobs, youth unemployment failed to improve.

Housing prices and stock prices went up in the first half and second half, respectively.

Apartment prices in some districts of the Seoul Metropolitan Area, including Gangnam, Bundang in Gyeonggi Province, Yongin, and Gwacheon, skyrocketed in the first six months of this year.

The excessive price hikes led to the announcement of comprehensive real estate measures by the government. The housing price hike stopped after the announcement, but prices are not going down significantly.

The KOSPI index hit 1,300 points in the second half. Installment funds became so popular that one of two households has an installment fund account. Experts said that people’s asset structures were changing fundamentally.

The aggregate amount of money deposited in funds reached a record 24.27 trillion won. People began to invest through asset management firms instead of buying and selling stocks by themselves.

Oil prices and interest rates rose.

West Texas Intermediate (WTI) crude oil, which was priced around $40 a barrel as recently as early this year, exceeded $60 for the first time ever on June 27.

In late August, when hurricane Katrina inflicted damage on oil facilities in the Gulf of Mexico, the WTI price for October delivery hit the $70 mark. The price of Dubai oil was $37 early this year, but soared to the $60 range in August.

The oil price hike was responsible for compromising corporate profitability and shrinking sales of SUVs, which consume a large amount of gasoline.

Shin Hyun-soo, a researcher at the Korea Institute of Industrial Economics and Trade, explained, “External variables, including oil price hikes, tend to greatly reduce sales of small-and medium-sized enterprises, which lack funding.”

The Finance and Currency Board of the Bank of Korea raised the overnight call rate twice this year. The rate went up to 3.75 percent in two months from 3.25 percent in early October, ending the era of low interest rates. Against this backdrop, banks also raised their loan rates.

The business community will probably remember this year as a “silent” year. With the “X-file,” which contained information on illegal money transactions between large conglomerates and the political circles unveiled, the Samsung Group, the leader of the business community, increasingly lost ground.

As brothers of the founding family of the Doosan Group was involved in a conflict on management rights, former Doosan Chairman Park Yong-sung, the plainspoken figure of the business community, had to resign from the chairman of the group and chairman of the Korea Chamber of Commerce and Industry.

The business community, whose integrity was critically damaged, did not voice their opinions to the government. With increasingly dwindling numbers of attendees, the atmosphere was cold at the monthly meeting of chairmen of the Federation of Korean Industries. Some business leaders even refrained from raising their voices, saying, “Silence is the best policy in troubled times.”

Young-Hae Choi legman@donga.com yhchoi65@donga.com