The below presents projections for economic growth in 2005 by government bodies and independent organizations, as well as export and import data, consumer sentiment, private consumption, industrial output, and worker productivity. Also covered is the current state of the labor market and the pending productivity crisis that the country faces as it progresses toward a "super-aged society."

GDP

The Korean government has projected that GDP growth will slow to between 3.5% to 3.9% in 2005, down from the 4.7% gain in 2004. The revised forecast was also far lower that the earlier 5% target, which the government says is necessary to spur job creation. Samsung Economic Research Institute has maintained its 2005 projection at 3.7%, noting that although consumer spending has seen a faster recovery in early 2005, exports remain at risk due to the strengthening won. Korea Economic Research Institute, Hyundai Research Institute, and the Bank of Korea all foresee a gain of around 4% in 2005. LG Economic Institute, in their assessment of risks for 2005, highlight the fall in Korea's ICT sector, the strong won impacting company profits, and the stagnating consumption among lower-income groups.

Trade

2004

Exports surged 31.2% to US$254.2 billion in 2004, the largest gain in 17 years, according the Ministry of Commerce, Industry, and Energy. Exports to BRIC (Brazil, Russia, India, and China) nations jumped by 41.9%, with China alone growing 42.7%. Shipments to the EU grew 39.5% while those to the US and Japan both increased by roughly 25%.

Imports climbed 25.5% to $224.47 billion, due to pronounced climb in oil prices. Goods from China, which grew to 13.2% of total imports, for the first time outpaced imports from the US. Imports from China totaled US$29.6 billion, while those from the US were, US$28.8 billion, 13.0% of total imports to Korea.

The trade surplus hit $29.75 billion, the highest in six years due to mobile phones, chips, automobiles.

January 2005

Semiconductor, communications goods, and automobiles, exports recorded 18.7% year-on-year growth in January 2005 to US$22.5 billion. Semiconductor shipments surged 26.7%, while communications goods ticked up 24.1%. Automobiles and steel exports surged by 76% and 43.8%, respectively, while PC shipments tumbled 12.5%. Exports to China were up 15.9%, and 16% to the US. Southeast Asia-bound shipments dropped by 3.3%; those to Latin America shot down 16%. The ministry expects exports to register a decline in February due to seasonal factors.

Imports grew to 19.2% year-on-year to US$19.3 billion, with the trade surplus recording US$3.2 billion.

Consumer Sentiment

Korea's consumer sentiment index, which measures consumers' assessment of their personal economic conditions and spending plans over the future six months, rose to 90.3 in January. The index was below the desired 100 level, but was a vast improvement over the 85.1 reported in November and a reversal of downward trend seen over the previous nine months.

Private Consumption

The Bank of Korea estimates that private consumption fell 0.9% in 2004, slightly lighter than 1.4% in 2003, owing in part to the credit bust. The outlook for 2005 is more upbeat, however. J.P Morgan forecasts an increase of 1.5% due to higher incomes and improving employment. Goldman Sachs in Seoul projects a more modest rise of 0.6%, but maintains that an upward trend will be sustained as consumer sentiment is improving and as consumers make progress in resolving debts.

Industrial Production

Industrial production slowed down to a 4.5% rise in December 2004, compared to a 9.9% rise in November. The slight uptick has been the weakest gain in industrial production since the 1.6% rise in August 2003, just as Korea was heading out of recession. The month-on-month rate is a decrease of 1.9% after seasonal adjustments, the largest decline in nine moths.

The main culprits behind the slowdown are the rising won the intensifying competition in the global ICT market, particularly in the mobile phone segment. Overall, telecommunication output slipped 2.2% year-on-year, compared to a 17% gain in November. Semiconductor output tumbled 19% during the same period compared to a 28% rise in November.

The Regulatory Environment

The government is expecting to drop roughly 1,000 regulations in Korea's largest industries in 2005, while discouraging administrative departments from creating new ones or strengthening existing regulations. Regulations in the housing, construction, and culture sectors are slated to get the ax in the first quarter. Internet commerce, medical services, and financial consulting regulations will head toward the chopping block in the second quarter. The third quarter will see fewer regulations in sectors such as ICT, media broadcasting, tourism and leisure, and businesses servicing the elderly. The telecommunications industry is slated for deregulation in the fourth quarter, when some restrictions on entering the financial industry will be lifted as well.

Worker Productivity

A survey of foreign companies in Korea showed that the average sales per worker was US$1.2 million in 2003, 2.8 times higher than parent or sibling companies worldwide, which posted an average of US$430,000. The survey of 110 foreign Fortune companies, jointly run by Invest Korea of the Korea Trade-Investment Protection Agency and Cambridge University, sales per employee grew 32.4% between 2001 and 2003, compared to 17.6% growth in parent companies abroad. In all, there are currently 263 foreign companies operating in Korea, according to the agency.

As a competitor to China in attracting investment to Japan, Invest Korea also highlighted the efficiency of Korean divisions over those in China. According to the survey, 84% of Japanese manufacturers in Korea saw profits, compared to 74% in China.

The Labor Market

The number of employed increased by a mere 1.9% in 2004, far behind economic growth of 4.7%, while recent unemployment figures exhibit a upward trend in unemployment. January unemployment reached a three year high of 3.6%, or 904,000. In terms of education, those with high-school level of education or lower accounted for 73.2%. By age group, those in their 20s accounted for 48.4%, individuals in their 30s comprised 24.2%. By gender, employed men grew by 14% to 98,000 while women shot up 30% to 55,000. The January data was a move upward from the seasonally adjusted 3.5% for December.

Long term unemployment has also been trending upward. The National Statistical Office stated that individuals looking for work for more than a year ran upwards of 153,000 in December 2004, a 19.4% increase year-on-year. Those out of work for less than a year grew 4.2% year-on-year to 652,000. Samsung Economic Research Institute further indicated that the slow economy and other macroeconomic data point to a bleak job market up until the second half of 2005.

For all of 2005, Seoul is predicting unemployment of 3.5%, while the Bank of Korea and KDI both foresee 3.6%.

Samsung Economic Research Institute published a report in mid-February, stating that Korea's employable population will hit its zenith in 2009 before tumbling downward thereafter, ultimately leading to a productivity crisis. The institute says that Korea will hit three stages of restructuring, the first in 2005, the second in 2017, and the third in 2026.

2005 is expected to see the forced retirement of those around 45 years old, which entered the workforce during the boom of the 80s, but will now fall victim to their employers' pessimistic outlook for Korea's economic future. A similar fate is expected to befall the second and third generation of baby boomers as they hit their mid-40s in 2017 and 2026. Samsung Economic Research Institute emphasized that workers at the conglomerates were also at a much higher risk of such action than those at small and mid-size enterprises.

The National Statistical Office claims that Korea has the fastest aging society among the 30 members of the Organization for Economic Cooperation and Development. The United Nations has also projected that by 2026 Korea will have become a "super-aged society," when persons 65 or older will account for over 20% of the population.