The Korean Economy: Resilience amid Turbulence

Transcription

1 The Korean Economy: Resilience amid Turbulence Dr. Il SaKong Special Economic Advisor Adviser to the President Republic of Korea November 17, 17, 2008 November 17, 2008

2 1. Recent Macroeconomic Developments 2. Korea s External Position & Financial Strengths 3. Government s Policy Responses 4. Korea : Economic Outlook for 2009 envisioned by Korean Government 2

3 GDP Growth Trend : Gradual Slowdown GDP Growth Trend (%) Q Q2 Q3 Q4 Q Q2 Q3 GDP Growth (qoq, %) (1.0) 4.9 (1.7) 5.1 (1.5) (0.8) 4.8 (0.8) 3.9 (0.6) Private Consumption Facility Investment Construction Investment Export Import

4 Moderating Inflation Downward trend in consumer price (2008 YTD) CPI (%) & WTI (US$) WTI Jan Feb Mar Apr May Jun Jul Aug Sep Oct 0 * CPI: Consumer Price Index * WTI: West Texas Intermediate 4

5 Job Market Situation Unemployment Rate Job Creation Trend Unemployment Rate (%) New Jobs Created (YoY, 000) 6.0% % % 3.0% 3.7% 3.5% 3.2% 3.6% 3.2% 3.1% 3.0% 3.4% 3.1% 3.1% % % % Q107 Q207 Q307 Q407 Q108 Q208 Q Q107 Q207 Q307 Q407 Q108 Q208 Q308 5

6 Trade and Current Account Balance Robust export growth Exports (US$ bn, YoY Growth, %) % % Source: Bank of Korea % % % % Current account surplus is expected in 4Q % 23.0% Jan-Oct Export (USD billion) 2008 Textile 4% Computer 5% Diversified export products Others 26% Home appliance 5% Steel 6% Shipbuilding 7% Semiconductor 11% Machinery 8% Chemicals 10% Diversified export markets Automobile 10% Mobile communication 8% 2008 Current account and Trade balance (US$ bn) 5.0(e) Others 19.8% China 22.1% Middle East 5.3% Central & South America 6.9% EU 15.1% Q1 08 Q2 08 Q3 08 Q4 08 (e, KDI) 2009 (e, KDI) Japan 7.1% ASEAN 10.4% North America 13.3% Source: KITA (as of 2007) 6

7 1. Macroeconomic Performance 2. Korea s External Position & Financial Strengths 3. Government s Policy Responses 4. Korea : Economic Outlook for 2009 envisioned by Korean Government 7

8 Foreign Reserves, Bank & Corporate Sector s Soundness Current Asian Financial Crisis (late 1997) 1 Foreign Exchange Foreign Currency Reserves US$ 212.3bn 2 US$ 8.9bn ST External Debt a / FX Reserves 68% 3 717% Current External Debt b / FX reserves 86% 3 973% Total External Debt / FX Reserves 173% 3 1,957% Banking Sector Bank NPL Ratio BIS Ratio 0.7% 3 6.0% 7.0% 11.6% 3 Corporate Sector Debt to Equity Ratio Interest Coverage Ratio 106.5% % 404.8% % 1 as of end of as of October as of June 2008, Basel I 4 as of end of 2007 a. Short-Term Debt: Debt with original maturity shorter than 1 year b. Current Debt: Debt with remaining maturity shorter than 1 year 8

9 Korea s Foreign Reserves FX reserves (US$ bn) Total foreign exchange reserves Q108 Q2 Q3 Oct 1 Primarily due to government s provision of FX reserves to banking sector Are Korea s FX reserves liquid enough? Total reserves (US$ bn) Bonds mostly rated AA or above (90.7%) Largest global reserve holders (October 2008) FX reserves (US$ bn) China Japan Russia India Taiwan Korea Singapore Hong Kong ,906 Others 0.5 (0.2%) Deposit 19.3 (9.1%) Bonds Deposits Others Median of peers 1 : US$ 29.2bn 1 Includes Hong Kong (AA+), Slovenia (AA), Portugal (AA-), Italy (A+), Chile (A+), Czech Republic (A) and Estonia (A). Credit ratings by S&P. Source: IMF. Source: Bank of Korea 9

10 Korea s External Debt Total External Debt and Short-term Debt Proportion of total debt without default risk (US$ bn) (39% of GDP) External debt structure (US$ bn) Cash Advances for Shipbuiling Contracts (12%) (86.1% of Reserves) (68.1% of Reserves) Hedges for shipbuilders' export and overseas financial investment (22%) Hea No default risk(34%) External debt owed by banks (US$ bn) 50 0 Total Debt Current debt Short term debt Domestic banks ( 61%) * Short-term debt: Debt with original maturity shorter than 1 year * Current debt: Debt with remaining maturity shorter than 1 year 83.1 (39%) Foreign bank branches 10

11 Soundness of Banking Sector Moderating Loan Growth Low Delinquency Ratio Loan Growth (%) Delinquency Ratio (%) 2.0% % 1.0% 0.5% 1.0% 0.5% 1.5% 0.7% 1.1% 0.5% 1.4% 0.6% 1.5% 0.7% 1.5% 0.6% Q4 07 Q1 08 Q2 08 Q3 08 SME Leding HH Lending 0.0% 2007 May-08 Jun-08 Jul-08 Aug-08 Sep-08 SME Lending HH Lending Moderate Loan-to-Deposit Ratio Sufficient Room to Withstand Default Risks Loan-to-Deposit Ratio (%) 123.7% 126.5% 128.2% 126.8% 124.2% 104.2% 104.2% 105.4% 104.6% 103.2% 2007 Jun-08 Jul-08 Aug-08 Sep-08 Absorptive Capacity for the impact of default risk Coverage ratio is approximately 186% LTV ratio is approximately 47% Well-diversified lending Manufacturing (35.2%), Real estate (17.1%), Wholesale and Retail (14.3%), Construction (9.7%) Stringent risk management system implemented after Asian Financial Crisis 꺾은선형 1 Deposits including CDs Source: Financial Supervisory Services 11

12 Household Debt and Real Estate Bubble? Household Financial Debt to Financial Asset Ratio (%) Household Debt to GDP Ratio (%) Korea (Jun 08) U.S. (Dec 07) U.K. (Dec 07) Japan (Dec 07) 60 Real Estate to HH Asset Ratio (%) Korea(08 June) U.S.(07 Mar) U.K.(07 Mar) Japan(07 Mar) 20 0 Korea (Jun 08)) U.S. (Dec 05) U.K. (Dec 05) Japan (Dec 05) 12

13 Household Debt and Real Estate Bubble (II) Stricter regulation on mortgage than other countries Improving loan to value ratio Hong Korea U.S. Germany Japan Kong LTV ratio (%) 56 Mortgage/ GDP Regulation System 33.4% 72.3% 37.3% 52.4% 36.2% Direct Indirect Direct Mixed Indirect 60% LTV Limit 40-60% % Indirect (Portion) DTI Limit 40% - 60% Q08 2Q08 Source: Bank of Korea Financial Stability Report, April Financial Surplus = Financial Asset Increase - Financial Liability Increase. 2 Financial assets and liabilities exclude trade credits and other miscellaneous non-interest-bearing financial assets and debts. 13

14 Why then Some Negative Perceptions? Two Main Reasons (1) Korea s high openness (a) High trade dependency (Export / Import as % of GDP, as of 2007) Korea (38.7 / 37.2), US (8.4 / 14.6), Japan (16.3 / 14.2), China (37.5 / 29.4), UK (15.9 / 22.5), Germany (41.1 / 33.0), Spore (185.5 / 163.2), HK (166.4 / 177.7) (b) Open capital market - Foreign investors share in Korea s KOSPI: 42% (2004) 29% (Nov 2008) cp) US (11.3%, Jun 07), Taiwan (30.9%, Oct 08), France (38.2%, Sep 07), Mexico (35.5%, Jun 08), UK (40.0%, end 06), OECD average (25%) Performance of KOSPI (2008 YTD) 1,900 (2) Psychological factors - The currency crisis and impact on investors psychology Closing Price (KRW) 1,700 1,500 1,300 1, ,124 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov KOSPI 14

15 1. Macroeconomic Performance 2. Korea s External Position & Financial Strengths 3. Government s Policy Responses 4. Korea : Economic Outlook for 2009 envisioned by Korean Government 15

16 Korea s Policies toward Financial Market Stability #1 Foreign Currency Provision - US$ 45bn to the banking sector by utilizing FX reserves (since October) - Fed-BOK Currency Swap (US$ 30bn) - Possible Expansion of Swaps with China and Japan (Existing swap line: USD 4bn with China, USD 13bn with Japan) #2 BOK s Liquidity Provision - Through RP (KRW 7.5 trn) and Bank Debenture (KRW 0.8 trn) purchase #3 3 Year Guarantees of Bank s Foreign Borrowing up to US$ 100bn 16

17 Fiscal stimulus package Fiscal Stimulus Package: Approximately KRW 33trn (US$ 26bn, 3.7% of GDP) - Expansion of public expenditure for investing in infrastructure and strengthening social safety net (KRW 15.6 trn) - Reduction in personal income and corporate taxes (KRW 17.7trn) Fiscal Stimulus Packages Korea U.S. Japan China Amount KRW 33 trn USD 317 bn JPY 6.7 trn RMB 4 trn GDP Ratio 3.7% 2.3% 1.2% 17.7% (over 3 yrs) 17

18 Korea s Strong Fiscal Strength enabling Further Stimulus Trend of Korea s fiscal balance Relatively Low Debt Level Consolidated fiscal balance (% of GDP) Government debt to GDP (%) 4% 3% 3.3% 3.8% 2.1% 200% 180% 180.0% 2% 1% 1.1% 1.2% 1.0% 0.7% 0.4% 0.4% 160% 0% 140% Q08 120% Source: Ministry of Strategy and Finance 100% OECD Average: 77% Comparison with other countries 80% 66.0% 72.0% Fiscal surplus (% of GDP) 60% 62.0% % 33.0% 0 20% (2) (4) % Korea US Japan Germany France Korea (A) AA median A median Hong Kong (AA+) Slovenia (AA) Portugal (AA-) Source: S&P Sovereign Risk Indicator, July 2008 Taiwan (AA-) Italy (A+) China (A+) Iceland (A) Source: OECD and IMF 18

19 Monetary Easing BOK s Base Rate Trend (%) Other Central Banks Equivalent Rate USA 1.0% 1% % (Oct 9) UK 3.0% 1% Current rate: 4.00% 0.75% (Oct 27) 0.25% (Nov 7) Japan ECB 0.3% 1% 3.75% 1% Canada 2.25% 1% Jan/07 Aug/07 Mar/08 Oct/08 China 6.66% 1% 19

20 1. Recent Macroeconomic Developments 2. Current Issues & Answers 3. Government s Policy Responses 4. Korea : Economic Outlook for 2009 envisioned by Korean Government 20

21 4. Korea: Economic Outlook for 2009 envisioned by Korean Government GDP Growth Job Creation Original Forecast Around 3% 120,000 ~ 130,000 Policy Effect Around 1%p 70,000 ~ 80,000 Tax credit (KRW4.4 tn) Supplementary budget (KRW 4.6 tn) Tax cut (2009 : KRW 10.3tn) Additional Fiscal Measures (Nov. 3) - Expenditure (KRW 11 tn) - Tax cut (09: KRW 0.9 tn) - Front-loading of Expenditure Deregulation & monetary easing 0.2%p 0.3%p 0.5%p 0.4%p 0.03%p 0.1%p +α Continued deregulations Enhancement of labor market flexibility After Stimulus Around 4% 190,000 ~ 210,000 21

22 Thank You 22