Korea Economy and Industry Overview

Korea Economy and Industry Overview Corporate Research Division (Hong Kong) Jun 215 The Bank of Tokyo-Mitsubishi UFJ. Ltd. A member of MUFG, a global financial group

Table of contents 1.Overview of the Korea Economy 2.Korean Economic Indicator and Outlook 3.Trends of Major Industry in Korea 4.Conclusion 1

1.Overview of the Korea Economy 2

1. Overview of the Korea Economy GDP Growth Trend ~ Annual GDP growth maintained moderate growth, while quarterly growth continued to slow down Korea economy continued to grow and maintain moderate rising trend since 212. Real GDP growth rose further by 3.3% YoY in 214 from 3.% YoY in 213. GDP expansion in 214 was supported by continuous growth in manufacturing and steady growth in export. In addition, plant and equipment investment turned positive. Quarterly GDP growth year-on-year continued to slow down since 1Q14 and decelerated to 2.4% in 1Q15. The major contributors, manufacturing further slowed down and export was tepid. Thus, it largely affected to deceleration of economic growth. Annual GDP Trend ~ Continued to rise at a moderate pace (KRW trillion) (YoY, %) 1,8 1,333 1,377 1,429 1,485 1,5 Real GDP growth rate (RHS) 1,265 8 1,43 1,4 1,152 1,2 876 92 966 6 9 721 767 63 651 3.3% 4 6 3 Quarterly GDP Trend ~ The growth pace further decelerated in 1Q14 despite still growing Real GDP Growth (YoY, %) Nominal GDP 2 21 22 23 24 25 26 27 28 29 2 211 212 213 214 (Note) 1. Preliminary data was used for 214 2. Due to the change of System of National Accounts, GDP figures were restated from 2 (Source) Bank of Korea ("BOK") (at chained 2 year prices, original series) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2.1 2.7 3.2 3.5 3.9 3.4 3.3 2.7 2.4 2 (Note) 1. Preliminary data was used from 1Q14~4Q14 and advanced estimate data was used for 1Q15 2. Due to the change of System of National Accounts, restated GDP figures were used (Source) BOK 3

1. Overview of the Korea Economy Contribution to Real GDP Growth by Production Activity ~ Recent GDP growth decelerated due to slowdown in manufacturing Regarding production activity, manufacturing accounted for 28.7% of total real GDP followed by retail and food hospitality (.6%) in 1Q15. Besides, finance & insurance and construction accounted for 6.4% and 3.1% respectively. In 1Q15, deceleration of quarterly GDP growth in YoY was due to slowdown in manufacturing, while retail & food hospitality and finance & insurance registered relatively stable growths. Construction turned positive after the negative growth in the previous quarter supported by stimulus policy. Contribution to Real GDP Growth by Major Production Sectors (YoY, %) (at chained 2 year prices, original series) 8 6 4 2 2 4 25 26 27 28 29 2 211 212 213 214 215 Manufacturing Construction Retail and Food Hospitality Finance and Insurance Others GDP (Note) 1. Preliminary data was used from 1Q14~4Q14 and advanced estimate data was used for 1Q15 2. Others include real estates & leasing, public admin & defense, information and telecommunication, educational service, business service and etc 3. Due to the change of System of National Accounts, restated GDP figures were used (Source) BOK 4

1. Overview of the Korea Economy Contribution to Real GDP Growth by Expenditure Activity ~ Recent GDP growth slowed down due to tepid export Regarding expenditure, private consumption accounted for 51.4% of total real GDP in 1Q15 followed by government consumption (14.6%), construction investment (11.5%), and plant & equipment investment (9.7%). Besides, net export shared 3.5% of total real GDP as export accounted for 55.8%, while import accounted for 52.3%. In 1Q15, slowdown in quarterly GDP in YoY was affected by lackluster export. Meantime, growth trends of private and government consumptions as well as plant & equipment investment were stable compared with previous quarter. Construction investment turned positive. Contribution to Real GDP Growth by Expenditure Activity (YoY, %) (at chained 2 year prices, original series) 2 15 5 5 15 25 26 27 28 29 2 211 212 213 214 215 Private consumption Government consumption Construction investment Plant and equipment investment Export of goods and service Import of goods and service Adjusted others GDP (Note) 1. Preliminary data was used from 1Q14~4Q14 and advanced estimate data was used for 1Q15 2. Others include intangible fixed asset investment, other gross capital formation and statistical discrepancy 3. Due to the change of System of National Accounts, restated GDP figures were used (Source) BOK 5

2. Korean Economic Indicator and Outlook 6

2. Korean Economic Indicator and Outlook Export Condition ~ Declined due to drop in unit price of major export products affected by low oil price amid slower-than-expected global economic growth Korea s total export declined by 2.9% YoY to USD 133,568 million in 1Q15. By product, semiconductor accounted for 11.6% of total export followed by shipyards (.%), general machinery (8.8%), automobile (8.6%), petrochemical (7.1%) and petroleum (6.1%). By area, export to China accounted for 25.4% of total export followed by US (13.%), ASEAN-5 (.5%), EU(8.%) and Japan(4.8%). In 1Q15, decline in export was largely due to sharp drop in export unit price on major products such as petroleum and petrochemical affected by low oil price. Export to US grew significantly, but export to other areas weakened due to slower-than-expected economic growths. Export to China declined owing to slowdown in China economy, and exports to EU and Japan fell affected by weak EUR and JPY. Total Export and Growth Rate (USD million) (%) 6, 5, 4, 3, 2,, 5 6 7 8 9 11 12 13 14 15 (Source) CEIC Export Export Growth by Area YoY (RHS) 6 4 2 2 4 6 Fx Rate (KRW/USD and JPY/USD) (KRW/USD) 1,6 (YoY, %) 25 26 27 28 29 2 211 212 213 214 1Q14 1Q15 Total 12. 14.4 14.1 13.6 13.9 28.3 19. 1.3 2.1 2.3 1.6 2.9 China 24.4 12.2 18. 11.5 5.1 34.8 14.8.1 8.6.4 2.8 1.5 US 3.5 4.5 6. 1.3 18.8 32.3 12.8 4.1 6. 13.3 2.6 13.4 ASEAN-5 9.1 12.8 17.7 23.7 17.8 39.1 32.8.1 7.5 1.4 6.5 8.1 EU 15.4 11. 13.4 6.3 2.2 14.8 4.1 11.4 1. 5.7 16.2 21.1 Japan.7.4.6 7.1 22.9 29.4 4.8 2.2.7 7.2.1 22. 1,4 1,2 1, 8 6 (Note) ASEAN-5: Indonesia, Malaysia, Philippines, Thailand, and Vietnam (Source) CEIC JPY/USD (RHS) KRW/USD (JPY/USD) 16 4 5 6 7 8 9 11 12 13 14 15 (Source) Bloomberg 14 12 8 6 4 7

2. Korean Economic Indicator and Outlook Unemployment Rate and CPI ~ Unemployment rate slightly rose under the seasonal factor and CPI further lowered Overall unemployment as well as youth unemployment rates slightly rose in 1Q15 due to seasonal factor (i.e. graduation season). Overall unemployment rate is expected to stay relatively stable in view of still steady economic growth. Meantime, youth unemployment rate should be monitored as policy to increase retirement age from 55 to 6 would be effective from next year. CPI inflation further decelerated during 1Q15 mainly owing to continuous steep drop in oil price since 4Q14. Core CPI inflation slightly rose. CPI inflation is likely to remain low. Although private spending may improve moderately, CPI inflation would be restrained as oil price is widely projected to stay at low zone. Unemployment Rate and CPI Inflation 7 6 5 4 3 2 1 (%) CPI inflation (YoY) Unemployment rate Core CPI inflation (YoY) 25 26 27 28 29 2 211 212 213 214 215 (Note) Core CPI excludes oil and agricultural products (Source) Korean Statistical Information Service ("KOSIS") 8

2. Korean Economic Indicator and Outlook KOSPI Index ~ Market gained mild upward momentum supported by quantitative easing by ECB and delay on interest rate increase by US Fed The total market capitalization posted KRW 1,292 trillion as of end Mar 215 from KRW 431 trillion in early-25. KOSPI index saw mild upward trend during 1Q15 after the overall soft market in the pervious quarter. KOSPI Index rose supported by positive market sentiments. The sentiments were generated from quantitative easing by ECB, delay on interest rate increase by US Fed as well as interest rate cut by China. KOSPI Index Trend (Jan 198=) 2,5 2, 1,5 1, 5 25 26 27 28 29 2 211 212 213 214 215 (Source) Korea Stock Exchange 9

2. Korean Economic Indicator and Outlook Sentiment and Economic Composite Indices ~ Amid still cautious sentiments, leading indices remained mild upward trend in expectation of economic growth Business Sentiment Index ( BSI ) slightly rose under the still low level during 1Q15. Consumer Sentiment Index ( CSI ) stayed above, but it remained soft in overall. Relatively tepid BSI and CSI were affected by continuous slow economic growths. However, recent indices show some improvement. In relation to leading indicators, LCI and CLI remained modest rising trend and implied economic expansion in the near future. Sentiment Index 14 12 8 6 BSI 4 BSI (Industry total) 2 (Manufacturing) 25 26 27 28 29 2 211 212 213 214 215 (Note) 1. BSI ~ Business Sentiment Index; CSI ~ Consumer Sentiment Index 2. BSI, CSI: above ~ number of positive responses exceeds number of negative responses; below ~ number of positive responses is less than number of negative responses (Source) BOK Economic Composite Index CSI 14 12 CCI (Coincident Composite Index) 4 2 8 LCI (Leading Composite Index) CLI (Composite Leading Index) 6 25 26 27 28 29 2 211 212 213 214 215 (Note) 1. LCI, CCI indices: Average 2= 2. CLI (RHS) Index: above and increasing ~ expansion; above and decreasing ~ downturn; below and decreasing ~ slowdown; below and increasing ~ recovery (Source) KOSIS, OECD 98 96

2. Korean Economic Indicator and Outlook Outlook of Korea Economy ~ Korea GDP may maintain positive growth despite milder-than-expected paces supported by improvement in domestic demand Korea economy is forecast to grow modestly in 215-216. Projection on Korea economic growth has been further adjusted down (i.e. BOK forecast as of Jan 15 was 3.4% and 3.7% in 215-216). It factored in recent soft export and rising uncertainties in global economy. Therefore, in 215, economic growth might be possible to slightly slow down. In 216, it is likely to rise moderately. Domestic demand may improve. Private spending would be supported by low oil price and further interest cuts (i.e. 2.% 1.75% on Mar 215 1.5% on Jun 215) amid still positive economic expansion. However, any possible negative impact from recently outbreak of MERS should be monitored. Plant & equipment investment might be stable, and construction investment may increase due to recovering construction. Export condition becomes more challenging and it may continue to be affected by uncertain restraining factors (i.e. unfavorable forex movements, slow China economy, low oil price, negative impact on interest rate hike by US Fed and etc.) in the near term. Meantime, officially signed FTA agreement between Korea and China (as of 1 Jun 15) would be a positive factor for export once it is implemented (i.e. The deal is targeting to be effective within this year). GDP Growth Forecast 214 (YoY, %) BOK (as of Apr-15) IMF (as of Apr-15) OECD (as of Jun-15) 215 216 215 216 215 216 World 3.4 3.4 3.7 3.5 3.8 3.1 3.8 Korea 3.3 3.1 3.4 3.3 3.5 3. 3.6 China 7.4 6.9 6.8 6.8 6.3 6.8 6.7 US 2.4 2.9 2.8 3.1 3.1 2. 2.8 Euro area.9 1.4 1.8 1.5 1.7 1.4 2.1 Japan.1 1. 1.3 1. 1.2.7 1.4 (Note) Euro area: BOK and IMF ~ Eurozone 17 countries; OECD ~ Euro area 15 countries (Source) BOK, IMF, OECD 11

3. Trends of Major Industry in Korea 12

3. Trends of Major Industry in Korea Electronics ~ Industry may maintain positive growth at a small rate supported by continuous stable demand from semiconductor Electronics industry slightly softened. Production and export was largely flat YoY in 1Q15 In 1Q15, export value to Europe declined sharply due to weak EUR, while export to the largest market China and ASEAN rose at healthy rates backed by stable demand. By product, export of flat panel display remained soft, and export of handset (incl. handset parts) was under pressure by decline in export of finished products amid tight competition and increase in overseas production capacity. However, semiconductor rose by 7.3% YoY and upheld overall export to sustain supported by high demand of mobile memory and positive demand of system memory. Looking forward, electronics industry may maintain a positive growth at a small rate. Handset performance could be temporarily lifted due to introduction of new model, but the impact might be limited. Semiconductor is expected to continue to grow slowly supported by stable demand and as a whole, it would be a major contributor for the industry. Electronics Industry Production (KRW trillion) (YoY, %) 5 4 4 3 3 2 2 5 6 7 8 9 11 12 13 14 1Q14 1Q15 Export Domestic YoY (Production) (RHS) YoY (Export) (RHS) (Note) 1. Production ~ The sum of ICT devices and software 2. Export ~ Export value out of domestic production, Domestic ~ Domestic sales out of domestic production 3. Annual average FX rate was used for export (Source) KAIT, KEA, IITP Export Major Products (USD billion) 8 Semiconductor Flat panel display 6 Handset (incl. handset parts) 4 2 5 6 7 8 9 11 12 13 14 1Q14 1Q15 Export by Major Area (USD billion) (YoY, %) 25 China (incl. Hong Kong) ASEAN 5 2 15 5 Europe Central & South America YoY US Japan 2 211 212 213 214 1Q14 1Q15 DRAM and NAND Price Trend 4 3 2 (Note) 1. Due to new classification of statistics, the data from 212 was restated 2. ASEAN ~ Mainly Singapore, Thailand, Indonesia and Malaysia (Source) NIPA (USD) 4 3 2 1 11 12 13 14 15 (USD) 8 6 4 2 (Note) Due to the statistics reclassification, handset data from 212 includes handset parts (Source) IITP, NIPA, KEA, KAIT (Source) Bloomberg DRAM (2GB) NAND (RHS) 13

3. Trends of Major Industry in Korea Automobile ~ Production may stay soft due to cautious outlook on export despite possible positive growth in domestic sales Automobile production in Korea declined by 4.1% YoY to 1.11 million units in 1Q15. Domestic sales sustained to grow supported by low oil price, new models and demand for multipurpose vehicle such as SUV and mini van. Export volume fell by 6.8% YoY. Despite favorable export growth to US, overall weak export was affected by economic downturn in Russia, Middle East and some emerging markets. In addition, unfavorable forex rate (i.e. Depreciation of JPY, EUR and RUB) affected adversely on price competitiveness of Korea automobiles. Looking forward, domestic production is likely to stay soft due to cautious outlook on export despite continuous positive domestic sales. Export might be under pressure as current restraining factors are unlikely to be reversed in the short term. Further expansion plans on overseas production may limit the export, but it would support global sales by major players to recover together with still steady demand in China and US. Domestic Production by Vehicle Type (, units) (YoY, %) 5 14 45 12 4 35 8 3 6 25 4 2 2 15 2 5 4 6 7 8 9 11 12 13 14 15 (Source) CEIC Commercial Vehicle (CV) Production: (1Q15) Passenger Vehicle (PV) Production: 1 (1Q15) YoY Growth (PV Production): 4.6 (1Q15) (RHS) YoY Growth (CV Production): 2.2 (1Q15) (RHS) Export by Area (USD billion) (YoY, %) 7 6 5 4 3 2 (Source) KAMA US EU Central & S America Others Middle East Other Europe Asia YoY (Total) 7 8 9 11 12 13 14 1Q141Q15 8 6 4 2 2 4 Production and Sales (, units) Domestic Domestic Export Overseas production sales sales production (YoY, %) (YoY, %) (YoY, %) (YoY, %) 25 37 6.6 114 4.5 259 8.7 74 78.7 26 384 3.8 116 1.9 265 2.4 1 35.9 27 49 6.4 122 4.7 285 7.5 116 15.1 28 383 6.4 115 5.3 268 5.7 146 25.4 29 351 8.2 139 2.7 215 19.9 19 3.5 2 427 21.6 147 5.1 277 29. 26 37. 211 466 9. 147.6 315 13.7 314 2.6 212 456 2. 141 4.3 317.6 364 15.8 213 452.9 138 1.9 39 2.6 411 13. 214 452.1 146 5.8 36.8 441 7.4 1Q14 115 3.7 34 4.3 79.9 9 6.9 1Q15 111 4.1 34 2.1 73 6.8 111 1.7 (Note ) Domestic sales ~ Units sold by Korean car makers (Source) KAMA Global Sales by Hyundai-Kia (, units) (YoY, %) 8 6 4 2 5 6 7 8 9 11 12 13 14 1Q14 1Q15 Sales by Hyundai and Kia Motors (Note) Sales units were based on the shipment (Source) Hyundai Motor, Kia Motors, News articles YoY (RHS) 3 2 14

3. Trends of Major Industry in Korea Petrochemical ~ Marginal improvement is expected due to still positive demand in domestic and overseas, while product price may remain low Ethylene production edged down by.7% YoY to 2.7 million tons in 1Q15. Production of major petrochem sectors grew by 2.3%YoY in the same period. Domestic demand of major products remained soft under the slow economy. Export in volume was pushed up by continuous impact of capacity expansion on intermediaries. Also, there was stable overseas demand in synthetic resins. However, export in value fell significantly due to product price drop affected by sharp decline in oil price since 4Q14. Looking forward, amid ethylene production may soften due to more maintenance schedules in 215, overall industry production is expected to grow modestly. Domestic demand may recover marginally supported by positive demand from construction and electronics. Export may rise, but at a slower pace. While slowdown in China economy would limit export growth, low oil price may continue to support price competitiveness of naphtha basis products by Korea against coal or ethane basis products. Meantime, product price is expected to stay low in overall. Oversupplied PX, the largest export product by Korea, may see temporary relief on the oversupply condition to a certain extent due to explosion in PX plant in China. Ethylene Production (, tons) (YoY, %) 8 7 6 5 4 3 2 7 8 9 11 12 13 14 15 Ethylene Production: 27 (1Q15) YoY Growth:.7 (1Q15) (RHS) (Source) CEIC Export of Petrochemical Products 5 4 3 2 2 3 (USD billion) (YoY, %) 6 4 5 4 3 2 2 3 5 6 7 8 9 11 12 13 14 1Q14 1Q15 Export of petrochemical products (Source) MOTIE, MKE YoY (RHS) 3 2 Production & Export of Major Petrochem Sectors (, tons) (, tons) 7, 5, 6, 5, 4, 3, 2, 1, Raw Materials and Ethylene Price Trend (USD/bbl) 15 12 9 6 3 5 6 7 8 9 11 12 13 14 1Q14 1Q15 Olefins Intermediaries Synthetic fibers raw materials Export (RHS) (Source) KPIA 5 6 7 8 9 11 12 13 14 15 Brent crude oil Ethylene fob Korea (RHS) (Source) Bloomberg BTX Synthetic resins Synthetic rubbers Naphtha (RHS) (USD/MT) 2, 1,6 1,2 8 4 4, 3, 2, 1, 15

3. Trends of Major Industry in Korea Steel ~ Growth would be limited as domestic demand and export are likely to remain largely flat Crude steel production declined by 6.5% YoY in 1Q15 affected by large scale of maintenance and some discontinued operation due to restructuring. Domestic sales for major products declined due to soft demand from automobile and shipbuilding despite recovering construction. Export in value fell due to overall product price drop, while export in volume maintained to grow supported by demand from ASEAN and EU. Looking forward, steel industry may see very limited growth at best. The industry is likely to be under pressure by restrained growth on global steel consumption and persistent oversupply. For domestic demand, recovering construction might be largely offset by cautious domestic production in automobile and weak shipbuilding. Export may slow down and register flat growth amid soft global steel consumption and further tightened competition with Japanese products supported by weak JPY. Crude Steel Production (, tons) (YoY, %) 7 6 5 4 3 2 5 6 7 8 9 11 12 13 14 15 Crude Steel Production: 1,666 (1Q15) YoY Growth: 6.5 (1Q15) (RHS) (Source) CEIC 4 3 2 2 3 Raw Material & Steel Price Index Trend (USD/MT) 1,2 1, 8 6 (USD/MT) 3 25 2 15 4 Iron ore 2 (RHS) 5 29 2 211 212 213 214 215 (Source) Bloomberg Steel price (World) Production and Consumption of Steel Products (, tons) (YoY, %) 8, 4 6, 4, 2, 4 5 6 7 8 9 11 12 13 14(e) Production Apparent consumption YoY Growth (Production) (RHS) YoY Growth (Apparent consumption) (RHS) (Note) Estimated data was used for 214 (Source) KOSA Export of Steel Products by Area (USD million) 4, 3, 2,, 5 6 7 8 9 11 12 13 14 1Q14 1Q15 (Source) KOSA Total export China (RHS) ASEAN- (RHS) Japan (RHS) US (RHS) EU-27 (RHS) 2 2 (USD million) 8, 6, 4, 2, 16

3. Trends of Major Industry in Korea Shipbuilding ~ Industry may continue to face headwind and need more time to see a meaningful recovery, despite temporary increase in deliveries New ship completion edged up by.7% YoY to 2.61 million tons in 1Q15 due to overall orderbook growths in previous terms. In line with orderbook trend by ship type, LPG/LNG carrier and container slightly lowered, but still remained as major sectors by accounting for 87% of total completions. While tanker and bulker went up from the very low bases. In 1Q15, new contracting by Korea continued to decline 34.1% along with decline in contracting by all other countries (i.e. 7.9% YoY). Thus, orderbook posted negative growth. Amid overall weak demand, contracting by Korean shipbuilders was supported by demand in competitive sectors such as high-value-added very large container and LNG carrier as well as tanker backed by low oil price. Looking forward, new completion is likely to see a short term of recovery given the orderbook trend during late 213 to 214. However, industry may continue to remain subdued and need more time for a meaningful recovery under the still oversupply global market. Low oil price may attract some demand for tanker, but it would discourage offshore vessel sector. Container market condition might see no significant change compared with last year. LNG demand may slightly soften after the large order on the previous term. Ship Completion by Vessel (, tons) (YoY, %) 18 28 16 24 14 2 12 16 12 8 8 6 4 4 2 4 8 5 6 7 8 9 11 12 13 14 15 Container Ship Completion: 82 (1Q15) Bulk Carrier Completion: 21 (1Q15) LPG/LNG & General Cargo Carrier Completion: 145 (1Q15) Oil Tanker Completion: 14 (1Q15) YoY (Container Ship):.5 (1Q15) (RHS) YoY (Bulk Carrier):.8 (1Q15) (RHS) YoY (LPG/LNG & General Cargo Carrier):.5 (1Q15) (RHS) YoY (Oil tanker): 13.5 (1Q15) (RHS) (Source) CEIC 17

3. Trends of Major Industry in Korea Retail ~ Overall sales of major retail sectors may improve moderately in line with mild improvement in private consumption Retail sales remained largely flat yearon-year and register KRW 87 trillion in 1Q15. Relatively soft growth was owing to sales decline in fuel store sector affected by low oil price amid sales from major retail sectors grew in overall. For sales by major sectors, most sectors saw positive growths in 1Q15. Not-in-store continued to perform well. Convenience store sales were pushed up by cigarette tax hike. Large discount store maintained to grow slowly. While, supermarket sales remained soft and department store was under the pressure by slower-than-expected improvement in private spending and ongoing competition with e-commerce and outlet. Looking forward, retail sales of major sectors are likely to rise at a moderate pace supported by mild improvement in private consumption. Also, the sudden contraction on retail sales after the ferry incident in Apr 14 may provide low base effect. For the near term forecast, RBSI shows that retailers project the market condition would improve compared with the previous quarters. However, there is a need to monitor the negative impact of MERS on retail industry. Amid still cautious view on department store, other major sectors may record positive growths. Retail Sales and Growth Trend (KRW billion) (YoY, %) 35, 3 3, 25, 2, 15,, 5, (YoY, %) 4 3 2 7 8 9 11 12 13 14 15 (Source) CEIC 15 14 13 12 1 9 8 7 6 5 25 26 27 28 29 2 211 212 213 214 1Q14 1Q15 (Source) CEIC Retail Sales: 87,358 (1Q15) YoY Growth:.2 (1Q15) (RHS) Growth Rate by Major Sector 25 2 15 5 5 Retail Business Survey Index ( RBSI ) Large Discount Store Not-in-store Supermarket Department Store Convenience Store 1Q5 1Q6 1Q7 1Q8 1Q9 1Q 1Q11 1Q12 1Q13 1Q14 2Q15: 1Q15 (Note) RBSI refers to the retailer sentiment index for the upcoming period though the survey. Index above means greater numbers of retailers expect improvement (Source) Korea Chamber of Commerce & Industry 18

4. Conclusion 19

4. Conclusion Outlook of Korea Economy and Major Industry Korea economy is expected to maintain steady growth despite milder-than-expected pace. GDP growth may slightly slow down this year due to the combination of tepid export and moderate improvement in domestic demand. Export might be under pressure by rising uncertainties and restraining factors such as unfavorable forex movements, slowdown in China economic growth, low oil price and possible negative impact from the interest rate hike by US Fed. US economic improvement may continue to uphold export to US market. Euro economy is projected to improve with support from QE by ECB, but it is still cautious in terms of export by Korea as the adverse impact from depreciation of EUR might be stronger than slow demand improvement in the short term. Overall, export would remain relatively weak. Domestic demand is likely to improve. Although high level of household debt would be a downward factor, private consumption may register mild improvement supported by low oil price and interest rate cuts. Plant & equipment investment might be stable, and construction investment may increase due to recovering construction industry after a series of stimulus policies. Meantime, low CPI, high youth unemployment rate and any possible negative impact from MERS should be monitored. Regarding major industry, most industries are expected to see some limited growths amid tight export environments. Electronics would maintain positive growth at a small rate supported by stable semiconductor sector. Automobile domestic production may stay soft due to tepid export outlook, while domestic sales would grow. Petrochemical might see marginal improvement due to still positive demand despite pressure by low product price. Steel industry growth may move largely in line with slower growth of world steel consumption. Shipbuilding may continue to face headwind under the weak global market. Retail sales of major sectors are expected to rise at a moderate pace supported by mild improvement in private consumption. Under the rising uncertainties and challenging export conditions, it would be the critical year for those major exporting industries to check the sustainable competitiveness. 2

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