South Korea

(1)

(2)

The Green Book :

Current Economic Trends

Overview 3

1. Global economy 4

2. Private consumption 8

3. Facility investment 12

4. Construction investment 14

5. Exports and imports 16

6. Mining and manufacturing production 18

7. Service sector activity 20

8. Employment 22

9. Financial markets 26

9.1 Stock market 9.2 Exchange rate 9.3 Bond market

9.4 Money supply & money market

10. Balance of payments 30

11. Prices and international commodity prices 32

11.1 Prices

11.2 International oil and commodity prices

12. Real estate market 36

12.1 Housing market 12.2 Land market

13. Composite indices of business cycle indicators 40

Policy Issues

2010 Tax revision 42

Economic News Briefing

48

Republic of Korea

(3)

(4)

The Korean economy saw private sector employment expanding at a faster pace, backed by brisk exports and steadily recovering domestic demand.

Mining and manufacturing production in July, thanks to robust exports, rose 1.1 percent month-on-month and 15.5 percent year-on-year. Service output lost 1.0 percent month-month-on-month affected by early fiscal spending in the first half, while gaining 3.4 percent year-on-year.

Consumer goods sales, backed by steadily increasing consumer spending affected by a recovering job market, increased 1.2 percent month-on-month and 8.6 percent year-on-year.

In July facilities investment dropped 3.1 percent month-on-month due to a high base effect of 8.0 percent increase, but year-on-year, the index rose 33.5 percent. Construction completed, while improving 3.5 percent year-on-year, shed 3.2 percent month-on-month, as early budget spending in the first half negatively affected civil engineering works.

The total number of workers hired in July gained 473,000 year-on-year, led by the manufacturing and service sectors. The employment rate (seasonally adjusted)posted 59.1 percent, adding 0.5 percentage points year-on-year, while the unemployment rate

(seasonally adjusted)landed at 3.7 percent, the same level as the previous year.

Exports in August, led by semiconductors and automobiles, jumped 29.6 percent year-on-year. Imports rose 29.3 percent from a year earlier, as those of capital and consumer goods accelerated an increase.

The consumer price in August posted a modest year-on-year increase at mid-2 percent level, as low prices of manufactured goods offset rising prices of agricultural products caused by bad weather conditions and an increase in some public utilities charges.

In August, stock prices fell and foreign exchange rates rose, as worries over a possible

The Green Book

Current Economic Trends

(5)

1. Global economy

Although the global economy continued a recovery track in terms of the real economy, the

pace of the recovery slowed down, especially in the US and China. The US, China and

Eurozone announced measures to keep the current monetary easing policies and froze base

rates.

US real GDP in the second quarter revised down to 1.6 percent (annualized q-o-q,

preliminary), with housing and job markets continuing to be sluggish, while industrial production and retail sales shifted to an increase.

Both existing and new home sales dropped month-on-month in July by 27.2 percent and 12.4

percent, respectively, staying on a downward track since the expiration of the 2010 Home

Buyer Tax Credits.

The unemployment rate posted 9.6 percent in August, up 0.1 percentage point from the

previous month, with those on non-farm payrolls decreasing 54,000, while the private sector

added 67,000 jobs.

Industrial production and retail sales shifted to an increase in July, and in August the

Institute for Supply Management (ISM) manufacturing index improved.

The Federal Reserve at the FOMC meeting on August 10 decided to maintain the target for

the federal fund rate at zero to 0.25 percent along with other quantitative easing measures

revived. Fed chairman Bernanke mentioned on August 27 that the Fed is prepared to provide

additional monetary accommodation if the economic outlook were to deteriorate

significantly.

US

(Percentage change from previous period)

Annual Q1 Q2 Q3 Q4 Q1 Q2 Jun Jul

Real GDP1 _-2.6 _-4.9 _-0.7 _1.6 _5.0 _3.7 _1.6 _-

-- Personal consumption expenditure -1.2 -0.5 -1.6 2.0 0.9 1.9 2.0 -

-- Corporate fixed investment -17.1 -35.2 -7.5 -1.7 -1.4 7.8 17.6 -

-- Construction investment for housing -22.9 -36.2 -19.7 10.6 -0.8 -12.3 27.2 -

-Industrial production -9.3 -4.7 -2.7 2.0 1.7 1.7 1.6 0.0 1.0

Retail sales -6.3 -1.7 0.0 1.8 1.8 2.0 1.1 -0.3 0.4

New home sales -22.5 -8.6 4.2 9.1 -7.0 -3.6 -6.5 12.1 -12.4

New non-farm payroll employment

(thousand)2 -395 -753 -477 -261 -90 87 190 -175 -54

Consumer prices (y-o-y, %) -0.3 -0.2 -1.0 -1.6 1.5 2.4 1.8 1.1 1.3

2009 2010

1. Annualized rate (%) 2. Monthly average

ISM manufacturing index(base= 50)

(6)

US federal funds rate and consumer prices Source: US Federal Reserve Board & Department of Labor US non-farm payroll employment (m-o-m change)

Source: US Department of Labor US GDP(q-o-q, annualized rate)

Source: US Department of Commerce

1-1

1-2

(7)

China’s economy saw industrial production and fixed asset investment rise at a slower pace, while domestic consumption and exports continued an upward trend. Consumer prices went up 3.3 percent with the Manufacturing Purchasing Managers Index (PMI) shifting to an increase in four months, while housing prices decelerated an increase for the third straight month.

Japan’s economy decelerated the growth at 0.1 percent quarter-on-quarter in the second quarter of 2010 amid ongoing deflation, while the appreciating yen undermined export growth. The Bank of Japan and the Japanese government released additional monetary easing measures of 10 trillion yens and a stimulus package as large as 920 billion yens, respectively, on August 30.

The eurozone economy grew faster in the second quarter of 2010, posting a 1.0 percent rise from the previous quarter, as major eurozone economies performed well including the German economy which posted 2.2 percent quarter-on-quarter growth. The European Central Bank (ECB) decided on September 3 to maintain the base rate at 1.0 percent and extend emergency liquidity supplies to early 2011.

China

Japan

(Percentage change from same period in previous year)

Real GDP

Industrial production

Fixed asset investment (accumulated)

Retail sales

Exports

Consumer prices

Producer prices

2008 2009 2010

Source: China National Bureau of Statistics

Eurozone

Real GDP

Industrial production

Retail sales

Exports (y-o-y, %)

Consumer prices (y-o-y, %)

2008 2009 2010

(Percentage change from previous period) Source: Japan's Statistics Bureau and Statistics Centre

Real GDP

Industrial and mining production

Retail sales (y-o-y, %)

Exports (y-o-y, %)

Consumer prices (y-o-y, %)

2008 2009 2010

Housing price(%, y-o-y)

10.7 (Feb 2010) 11.7 (Mar) 12.8 (Apr) 12.4 (May) 11.4 (Jun) 10.3 (Jul)

Manufacturing PMI(base = 50)

52.0 (Feb 2010) 55.1 (Mar) 55.7 (Apr) 53.9 (May) 52.1 (Jun) 41.2 (Jul) 51.7 (Aug)

(8)

Eurozone GDP growth and industrial production Source: Eurostat

Japan’s GDP growth

Source: Cabinet Office & Ministry of Economy, Trade and Industry, Japan China’s GDP and fixed asset investment

Source: National Bureau of Statistics of China

1-4

1-5

(9)

2. Private consumption

Private consumption (preliminary GDP)increased 0.8 percent quarter-on-quarter and 3.7

percent year-on-year in the second quarter of 2010.

Consumer goods sales in July, despite a drop in durable goods sales, rose 1.2 percent month-on-month, as the sales of semi-durable and non-durable goods increased.

On a month-on-month basis, durable goods sales declined 1.2 percent affected by a 5.2 percent fall in automobile sales, while non-durable goods sales such as those of vehicle fuels and food & beverages substantially improved by 2.7 percent.

On a year-on-year basis, the index increased 8.6 percent, as the sales of durable goods such as home electronics, semi-durable goods such as footwears and bags, and non-durable goods such as food & beverages all improved.

Sales at large discounters and specialized retailers rose at a faster pace, while those at department stores slowed down an increase slightly.

Consumer goods sales

(Seasonally adjusted)2

- Durable goods3

·Automobiles - Semi-durable goods4

- Non-durable goods5

1. Preliminary

2. Percentage change from previous period

3. Durable goods: Automobiles, electronic appliances, furniture, telecommunications devices, etc. 4. Semi-durable goods: Clothing, footwear, etc.

5. Non-durable goods: Food, medicine, cosmetics, fuel, tobaccos, etc. Source: Statistics Korea

2008 2009 20101

- Department stores

- Large discounters

- Specialized retailers2

Private consumption2

2008 2009 20101

1. Preliminary 2. National accounts 3. Percentage change from previous period Source: The Bank of Korea

Annual Q4 Annual Q1 Q2 Q3 Q4 Q1 Q2

1.3 -3.6 0.2 -4.4 -1.0 0.7 5.8 6.3 3.7

- -4.5 - 0.3 3.3 1.7 0.4 0.7 0.8

2008 2009 20101

1. Preliminary

(10)

Consumer goods sales

Source: Statistics Korea (industrial activity trend) Private consumption

Source: The Bank of Korea (national accounts)

2-1

2-2

2-3 Consumer goods sales by type

(11)

Although consumer goods sales are projected to temporarily decrease month-on-month in

August, affected by a high base effect in the last three consecutive months and unusual

weather conditions, the year-on-year trend is expected to steadily rise given improving

household income and strong consumer sentiment.

Domestic credit card spending continued to post a year-on-year double digit increase. Sales

at department stores and large discounters decelerated a rise by 3.1 percentage points and

4.9 percentage points, respectively.

Domestic sales of Korean cars went up 20.7 percent year-on-year, along with those of

gasoline increasing 6.4 percent.

Rain might negatively affect retail sales in August, as the number of rainy days increased

10.2 days from 13.8 days of the monthly average to 24 days.

Consumer sentiment in August, despite a slight fall from the previous month, stayed above

the base, while household real income had increased at a faster pace since the fourth

quarter of 2009.

Household real income(y-o-y, %)

-2.6 (Q3 2009) 2.4 (Q4) 4.4 (Q1 2010) 4.9 (Q2)

Consumer Sentiment Index(CSI, base=100)

110 (Mar 2010) 110 (Apr) 111 (May) 112 (Jun) 112 (Jul) 110 (Aug)

Value of credit card use(y-o-y, %)

19.1 (Mar 2010) 18.0 (Apr) 17.2 (May) 15.3 (Jun) 17.1 (Jul) 17.2 (Aug)

Department store sales(y-o-y, %)

Discount store sales(y-o-y, %)

29.6 (Mar 2010) 30.5 (Apr) -6.6 (May) -15.2 (Jun) 1.1 (Jul) 20.7 (Aug)

Domestic sales of gasoline(y-o-y, %)

Source: Ministry of Knowledge Economy The Credit Finance Association

Korea Automobile Manufacturers Association Korea National Oil Corporation

(12)

Department store and discount store sales(current value)

Source: Ministry of Knowledge Economy (monthly retail sales)

2-4

2-5

2-6 Consumer sentiment index Source: The Bank of Korea Domestic automobile sales

(13)

3. Facility investment

Facility investment (preliminary GDP)in the second quarter of 2010 posted a

quarter-on-quarter increase of 9.1 percent and a year-on-year gain of 30.2 percent.

Facility investment in July fell 3.1 percent month-on-month, led by machinery investment,

due to a high base effect of an 8.0 percent increase from the month before, while rising 33.5

percent year-on-year.

Facility investment in August is expected to improve month-on-month considering a high

operation ratio in the manufacturing industry, low base effect from the previous month, and

improving investor confidence.

Facility investment2

- Machinery

- Transportation equipment

1. Preliminary 2. National accounts 3. Percentage change from previous period Source: The Bank of Korea

2008 2009 20101

Annual -1.0 --1.8 1.8 Q2 2.0 1.2 0.9 5.9 Q3 5.3 -1.0 8.0 -3.8 Q4 -13.3 -13.9 -14.4 -9.8 Annual -9.1 --13.0 4.7 Q1 -23.1 -10.5 -23.2 -22.6 Q2 -17.3 9.0 -21.5 -2.9 Q3 -7.0 10.8 -14.8 22.9 Q4 13.3 5.3 10.0 24.2 Q1 29.9 2.4 32.5 19.4 Q2 30.2 9.1 38.7 4.8

Facility investment

- Machinery

- Transportation equipment

Domestic machinery orders

- Public

- Private

- Machinery imports

Facility investment adjustment pressure3

1. Preliminary

3. Production growth rate minus production capacity growth rate in the manufacturing sector (%p) Sources: Statistics Korea & The Korea International Trade Association (machinery imports data)

2008 2009 20101

Annual -3.0 --4.2 2.1 -13.8 5.0 -15.5 6.4 -1.7 Annual -8.0 --12.9 12.0 -11.8 61.7 -19.9 -16.6 -4.0 Q2 -12.9 5.6 -18.9 11.8 -17.7 29.9 -22.3 -27.4 -8.9 Q3 -10.0 2.4 -17.0 20.0 3.4 280.2 -16.0 -15.9 1.2 Q4 10.2 13.9 8.8 15.5 20.0 -27.2 35.2 7.2 12.8 Q1 25.5 1.4 29.3 11.9 10.5 -43.7 22.9 46.3 21.7 Q2 24.5 6.0 32.2 0.0 24.2 -41.2 34.9 51.4 14.4 May 24.3 5.1 34.4 -6.6 57.5 26.8 59.8 43.2 16.4 Jun 23.8 8.0 31.5 0.4 1.8 -68.6 24.1 66.4 11.7 Jul 33.5 -3.1 41.6 9.4 -21.7 -90.1 30.1 38.2 9.5

Source: The Bank of Korea

Mar Apr May Jun Jul Aug

Business survey indices (base=100) for

103 104 104 107 106 106

manufacturing facility investment projections

(14)

Machinery orders and estimated facility investment(3-month average)

Source: Statistics Korea (industrial activity trend)

Machinery imports

Source: Korea International Trade Association (KITA) Facility investment by type

3-1

3-2

(15)

4. Construction investment

Construction investment (preliminary GDP) in the second quarter of 2010 declined 3.6

percent quarter-on-quarter and 2.9 percent year-on-year.

Construction completed (constant value)in July, while rising 3.5 percent year-on-year, fell

3.2 percent month-on-month, as civil engineering works declined due to early fiscal

spending in the first half of 2010 and a high base effect produced by strong mid-year

performance.

Construction investment, despite a sluggish housing market, is projected to slightly rise

month-on-month in August, as construction orders turned to an increase and a high base

effect from the first half of 2010 due to an early fiscal spending would fade.

Construction investment2

- Building construction

- Civil engineering works

1. Preliminary 2. National accounts

3. Percentage change from previous period Source: The Bank of Korea

2008 2009 20101

Annual -2.8 --4.6 -0.2 Q2 -0.5 -0.4 -0.8 -0.2 Q3 0.4 0.7 0.2 0.8 Q4 -7.7 -3.3 -14.8 1.6 Annual 4.4 --1.8 13.3 Q1 2.8 5.9 -9.6 26.1 Q2 5.1 1.8 -2.4 15.7 Q3 4.4 -0.7 1.2 9.7 Q4 5.0 -0.1 2.5 7.5 Q1 2.3 1.3 1.7 3.1 Q2 -2.9 -3.6 -6.3 1.1

Construction completed(constant value)

Construction orders (current value)

Building permit area

1. Preliminary

Source: Statistics Korea & The Ministry of Land, Transport and Maritime Affairs

2008 2009 20101

(16)

Leading indicators of construction investment Source: Statistics Korea (construction orders)

Ministry of Land, Transport and Maritime Affairs (building construction permit area) Construction completed and housing construction

Source: Statistics Korea (construction completed) Kookmin Bank (housing construction) Construction investment

4-1

4-2

(17)

5. Exports and imports

Exports in August continued a brisk pace as it rose 29.6 percent year-on-year to US$37.53

billion amid continuing global economic recovery. The value of total exports fell from the

previous month due to seasonal factors such as a drop in the number of working days

caused by summer vacation.

By export category, semiconductors, automobiles, and petroleum products jumped, while

wireless communications devices decreased year-on-year.

Imports in August rose 29.3 percent year-on-year to US$35.45 billion, as those of raw

materials, capital goods, and consumer goods continued to soar amid the recovering

economy. However, imports of raw materials increased at a slower rate due to falling unit

prices of crude oil.

The trade balance in August posted a surplus of US$2.08 billion, staying in the black for

seven straight months.

Raw materials(y-o-y, %)

38.8 (Q1 2010); 54.0 (Apr) 64.9 (May) 43.2 (Jun) 31.4 (Jul) 27.0 (Aug)

Capital goods(y-o-y, %)

Consumer goods(y-o-y, %)

(US$ billion)

Exports

(y-o-y, %)

Average daily exports

Imports

(y-o-y, %)

Average daily imports

2008 2009 2010

Annual 422.01 13.6 1.53 435.27 22.0 1.58 Annual 363.53 -13.9 1.30 323.09 -25.8 1.16 Q1 74.42 -25.2 1.10 71.42 -32.7 1.06 Q2 90.36 -21.1 1.30 73.97 -35.6 1.06 Q3 94.78 -17.6 1.32 84.85 -31.0 1.18 Q4 103.97 11.7 1.49 92.85 1.4 1.33 Q1 101.09 36.2 1.51 98.11 37.4 1.46 Q2 120.25 33.1 1.76 105.90 43.1 1.55 Jul 40.95 28.3 1.67 35.44 28.0 1.45 Aug1 37.53 29.6 1.56 35.45 29.3 1.47

Source: Korea Customs Service

(US$ billion)

Trade Balance

2008 2009 2010

Annual -13.27 Annual 40.45 Q1 3.00 Q2 16.39 Q3 9.94 Q4 11.12 Q1 2.98 Q2 14.44 Jul 5.51 Aug1 2.08

(18)

Imports(customs clearance basis)

Source: Korea Customs Service & Ministry of Knowledge Economy (export and import trend)

Trade balance

Source: Korea Customs Service & Ministry of Knowledge Economy (export and import trend) Exports(customs clearance basis)

Source: Korea Customs Service & Ministry of Knowledge Economy (export and import trend)

5-1

5-2

(19)

6. Mining and manufacturing production

Mining and manufacturing production increased 1.1 percent in July from the previous month,

posting a month-on-month increase for the ninth consecutive month, while rising 15.5

percent year-on-year.

By business category, automobiles (up 6.8%)and semiconductors and parts (up 4.8%)were

up month-on-month, while clothing and fur(down 15.9%)and refined petroleum (down

8.3%) went down.

Although both shipments and inventories stayed in a positive territory year-on-year,

inventories increased at a faster pace of 18.0 percent than shipments of 14.3 percent. By

business category, the shipments of semiconductors and parts (up 26.0%), and machineries

(up 52.4%)increased year-on-year, while those of other transportation equipment (down 12.8%) and computers(down 8.7%)declined. The inventories of semiconductors and parts

(up 69.4%)and automobiles(up 38.0%)rose year-on-year, while those of clothing and fur

(down 19.9%), and paper products (down 12.1%)fell.

The average operation ratio of the manufacturing sector rose 0.9 percentage points from the

previous month to 84.8 percent, the highest since January 1980 when the statistics was first

produced.

Mining and manufacturing production in August is expected to stay at around the same level

as the previous month despite brisk exports, given the possible production adjustment due

to the recent inventory increase.

Exports(y-o-y, %)

36.0 (Q1 2010) 33.1 (Q2) 28.3 (Jul) 29.6 (Aug) Production (q-o-q, m-o-m)

(y-o-y)

- Manufacturing

·ICT3

·Automobiles

Shipment

- Domestic demand

- Exports

Inventory4

Average operation ratio (%)

Production capacity

1. Preliminary

2. Including mining, manufacturing, electricity and gas industry 3. Information and Communications Technology

4. End-period Source: Statistics Korea

(20)

Average manufacturing operation ratio Source: Statistics Korea (industrial activity trend)

6-1

6-2

6-3

Industrial production

Source: Statistics Korea (industrial activity trend)

Inventory

(21)

7. Service sector activity

Despite robustness in hotels & restaurants and wholesale & retail sales, service activity in

July decreased 1.0 percent month-on-month as front-loaded fiscal spending dragged down

educational services and professional, scientific & technical services. It grew 3.4 percent

year-on-year.

By business category, hotels & restaurants (up 2.4%)and wholesale & retail sales (up 1.5%)

expanded month-on-month.

On the other hand, educational services (down 12.0%) and professional, scientific &

technical services (down 8.0%)went down significantly.

Service activity in August is expected to increase from the previous month as temporary

slowdown factors triggered by front-loaded fiscal spending in the first half have been

removed and a recovery in the job market took hold.

Changes in the number of employed (m-o-m, thousand)

267 (Mar 2010) 401 (Apr) 586 (May) 314 (Jun) 473 (Jul)

Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 Jun Jul

Service activity index 100 3.6 2.0 -0.3 2.4 1.9 3.7 5.7 4.0 4.7 3.4

22.0 1.3 -0.4 -4.8 -2.2 0.3 5.4 7.4 5.5 4.8 6.6

9.0 4.3 -6.6 -12.7 -10.0 -4.8 1.4 13.9 13.8 13.5 13.8

7.8 0.7 -1.5 -2.6 -0.6 -2.5 -0.2 1.5 0.9 0.0 2.6

8.4 3.3 0.7 -1.4 1.6 1.4 1.8 1.2 0.5 1.8 1.9

15.3 9.7 8.0 6.9 10.3 9.0 5.7 6.5 2.4 4.6 3.6

6.3 -2.1 5.3 -4.2 -2.2 6.7 21.3 10.4 -2.7 -16.0 -15.6

4.8 2.0 1.0 -1.7 3.8 0.0 2.0 3.1 2.1 4.0 2.4

2.9 4.4 -3.0 -4.9 -6.2 -0.8 0.0 5.4 7.9 9.6 6.4

10.8 1.7 2.8 9.4 16.5 -3.7 -9.6 -0.8 1.0 10.6 -3.6

6.0 8.7 10.4 8.9 8.9 10.4 13.2 11.5 11.1 12.5 10.0

2.9 2.2 -0.5 1.4 0.7 0.0 -3.8 -3.5 -0.1 -0.8 -0.4

3.8 0.1 -2.4 -3.8 -4.8 -1.4 2.4 1.3 6.0 7.9 4.3

0.4 5.8 3.7 0.1 9.0 6.0 -0.2 7.2 5.3 7.5 4.5

Weight 2008 2009

- Wholesale & retail

- Transportation services

- Hotels & restaurants

- Information & communication services

- Financial & insurance services

- Real estate & renting

- Professional, scientific & technical services

- Business services

- Educational services

- Healthcare & social welfare services

- Entertainment, cultural & sports services

- Membership organizations

- Sewerage & waste management

20101

(22)

July 2010 service industry by business Source: Statistics Korea (service industry activity trend)

7-1

7-2

7-3

Service industry

Source: Statistics Korea (service industry activity trend)

Wholesale and retail sales

(23)

8. Employment

The number of workers on payroll in July increased by 473,000 from a year earlier, while the

employment rate (seasonally adjusted) rose by 0.5 percentage points year-on-year to 59.1

percent.

By industry, employment in manufacturing (up 238,000), construction (up 118,000)and

services (up 182,000) climbed while that of agriculture, forestry & fishery (down 40,000)

declined. Hiring in manufacturing expanded at the highest pace since August 2000 as output

in mining and manufacturing increased amid robust exports. The service sector continued to

hire more workers amid domestic demand recovery and elevated consumption.

By status of workers, wage workers (up 639,000)expanded growth as the number of regular

workers (up 72,500)continued to increase while temporary workers (down 40,000) and

daily workers (down 46,000)decelerated the decreasing pace. Non-wage workers (down

166,000)including self-employed workers (down 128,000)continued to decline.

Annual Annual Jul Q1 Q2 Q3 Q4 Q1 Q2 May Jun Jul

Number of employed (million) 23.58 23.51 23.83 22.90 23.74 23.75 23.63 23.04 24.17 24.31 24.28 24.30

Employment rate (%) 59.5 58.6 59.4 57.4 59.3 59.1 58.7 57.0 59.6 60.0 59.8 59.8

(seasonally adjusted) 59.5 58.6 58.6 58.8 58.6 58.7 58.5 58.3 58.9 59.1 58.9 59.1

Employment growth (y-o-y, thousand) 145 -72 -76 -146 -134 -1 -6 132 433 586 314 473

(Excluding agriculture, forestry & fishery) 182 -34 -54 -160 -109 24 110 296 51.8 673 353 513

- Manufacturing -52 -126 -173 -163 -151 -143 -49 61 172 190 181 238

- Construction -37 -91 -127 -43 -113 -103 -107 -61 44 46 67 118

- Services 260 179 240 38 154 261 261 313 325 460 126 182

- Agriculture, forestry & fishery -37 -38 -22 14 -25 -25 -116 -164 -85 -87 -39 -40

- Wage workers 236 247 226 73 175 356 385 371 623 770 457 639

·Regular workers 386 383 329 318 313 386 515 651 766 763 750 725

·Temporary workers -93 22 92 -136 -5 125 105 -37 42 147 -116 -40

·Daily workers -57 -158 -195 -108 -133 -155 -235 -243 -185 -139 -177 -46

- Non-wage workers -92 -319 -302 -220 -309 -357 -391 -239 -189 -185 -143 -166

·Self-employed workers -79 -259 -229 -197 -286 -276 -279 -106 -91 -82 -85 -128

- Male 96 31 -30 -23 24 34 89 117 188 268 109 24

- Female 48 -103 -73 -124 -158 -34 -94 15 245 318 205 23

- 15 to 29 -119 -127 -112 -212 -99 -123 -77 -12 -58 -16 -85 -18

- 30 to 39 -26 -173 -202 -159 -213 -169 -149 -42 -13 1 -27 32

- 40 to 49 64 -24 -42 8 -27 -30 -46 -21 48 63 24 49

- 50 to 59 207 198 193 193 156 211 230 251 342 374 332 314

- 60 or more 18 54 87 23 49 109 37 -44 114 162 70 96

2009 2010

2008

(24)

Share of employed by industry Source: Statistics Korea (employment trend)

8-1

8-2

8-3 Share of employed by status of workers

Source: Statistics Korea (employment trend)

(25)

The number of unemployed persons in July increased by 3,000 year-on-year to record

931,000 and the unemployment rate (seasonally adjusted)stood flat from a year earlier at

3.7 percent.

By age, the unemployment rate edged up among people in their 20s and 40s as well as

seniors aged 60 or more, albeit decreasing among other age brackets.

The unemployment for youths aged 15 to 29 stayed at a similar level to the previous month,

recording 8.5 percent.

The economically inactive population in July was up 14,000 from a year earlier to post

15,380,000. Meanwhile, the labor force participation rate was up 0.4 percentage points

year-on-year to 61.3 percent.

The number of workers quitting jobs due to childcare (down 141,000)and reasons such as

rest, time-off, and leisure (down 41,000)decreased. On the other hand, those who quit jobs

due to housework (up 175,000)and old age (up 62,000)increased.

Annual Q3 Q4 Annual Jul Q1 Q2 Q3 Q4 Q1 Q2 May Jun Jul

Number of unemployed (thousand) 769 752 757 889 928 908 943 886 817 1,130 868 793 878 931

Unemployment growth (y-o-y, thousand) -14 -5 24 119 159 107 176 134 60 222 -75 -145 -83 4

- Male -12 1 25 80 115 83 116 95 25 83 -47 -88 -51 -22

- Female -1 -6 -1 40 44 24 60 39 36 139 -29 -57 -32 25

Unemployment rate (%) 3.2 3.1 3.1 3.6 3.7 3.8 3.8 3.6 3.3 4.7 3.5 3.2 3.5 3.7

(Seasonally adjusted) 3.2 3.2 3.2 3.6 3.7 3.5 3.9 3.7 3.5 4.3 3.4 3.2 3.5 3.7

- Youth aged 15 to 29 7.2 6.9 7.0 8.1 8.5 8.6 8.0 8.1 7.6 9.5 7.7 6.4 8.3 8.5

- Middle school graduate or under 2.2 2.1 2.1 2.5 2.3 2.9 2.6 2.2 2.3 5.1 2.5 2.3 2.6 2.8

- High school graduate 3.8 3.8 3.8 4.4 5.0 4.5 4.6 4.6 4.0 5.0 3.8 3.4 4.0 4.3

- College, univ. graduate or over 3.0 2.9 2.9 3.5 3.2 3.6 3.7 3.3 3.2 4.2 3.6 3.4 3.5 3.5

2009 2010

2008

Source: Statistics Korea

Annual Q3 Q4 Annual Jul Q1 Q2 Q3 Q4 Q1 Q2 May Jun Jul

Economically inactive population (million) 15.25 15.15 15.37 15.70 15.37 16.09 15.35 15.53 15.83 16.25 15.49 15.43 15.42 15.38

Labor force participation rate (%) 61.5 61.8 61.3 60.6 61.7 59.7 61.7 61.3 60.7 59.8 61.8 61.9 62.0 62.1

(seasonally adjusted) 61.5 61.4 61.2 60.6 60.9 60.9 60.9 61.0 60.6 61.0 61.0 61.1 61.0 61.3

Growth in economically inactive

297 289 372 447 420 514 445 374 456 166 146 65 264 14

population (y-o-y, thousand)

- Childcare 63 82 53 40 13 78 48 19 15 -118 -126 -124 -112 -141

- Housework 61 52 59 148 129 131 125 100 235 237 175 148 246 175

- Old age 76 104 59 88 81 52 102 105 92 193 59 32 53 62

- Rest 31 -27 99 123 122 162 112 94 123 -187 -27 -64 45 -41

2009 2010

2008

(26)

Unemployment rate and youth unemployment rate Source: Statistics Korea (employment trend)

8-4

8-5

8-6 Economically active population

Source: Statistics Korea (employment trend) Employment rate

(27)

9. Financial market

9.1 Stock market

The Korean stock market in August fell with worries over slow global economic recovery. The

KOSPI on August 3 hit a record high of 1,790.6 points this year as investment sentiment

improved with the US ISM manufacturing index beating the expectations. After early August,

however, concerns over global economy spread as the US Federal Open Market Committee

(FOMC) downgraded the economic outlook and the US government released weak figures of

employment, consumer spending and home sales. Slowed second quarter GDP growth in

Japan added to concerns about the global economy.

For the first time in three months, foreign investors shifted to a net-selling position,

amounting to 0.6 trillion won, as uncertainties in the global economy boosted appetite for

safe assets.

9.2 Exchange rate

The won/dollar exchange rate in August increased 15.4 won from 1,182.7 won at the end of

July to wrap up the month at 1,198.1 won. Despite solid fundamentals including huge

surpluses in the trade balance and the current account, the won/dollar exchange rate rose

amid worries over global economic slowdown after the release of worsening economic data

in the US.

The won/yen exchange rate was up 55.1 won month-on-month as heightened concerns over

global economic slowdown boosted appetite for safe assets, appreciating the yen.

Jul 2010 Aug 2010 Change1 _{Jul 2010} _{Aug 2010} _Change1

Stock price index 1,759.3 1,742.8 -16.6 (-0.9%) 481.5 464.7 -16.7 (-3.5%)

Market capitalization 972.8 964.0 -8.9 (-0.9%) 87.4 84.9 -2.5 (-2.9%)

Average daily trade value 5.6 5.0 -0.6 (-10.7%) 1.5 1.5 0.0 (0.0%)

Foreign stock ownership 31.7 31.5 -0.2 (-0.6%) 8.5 8.6 +0.1 (+1.2%)

1. Change from the end of the previous month

(End-period)

Dec Dec Dec Dec Jul Aug Change1

Won/Dollar 929.8 936.1 1,259.5 1,164.5 1,182.7 1,198.1 -1.3

Won/100Yen 783.4 828.6 1,396.8 1,264.5 1,368.7 1,423.8 -3.9

2006 2007 2008 2009 2010

KOSPI KOSDAQ

(End-period, point, trillion won)

(28)

9-1

9-2

9-3 Recent foreign exchange rate Foreign exchange rate (month-end)

(29)

9.3 Bond market

Treasury bond yields plummeted in August with lingering uncertainties over domestic and

overseas economies. Amid continuing worries over global economic slowdown spurred by

sluggish economic data in the US, China and Japan, the bond yields fell due to solid demand

for bonds with foreigners expanding their holding of long-term bonds.

9.4 Money supply & money market

The M2 (monthly average) in June expanded 9.0 percent from a year earlier excluding cash

management accounts (CMAs), which were included in M2 since July 2009. The year-on-year

M2 growth accelerated in June from the previous month of 8.7 percent, driven by increasing

money supply from the government including expanded fiscal spending and payments of

matured bonds.

In July, bank deposits continued to expand while asset management company (AMC)

deposits decreased. Bank deposits maintained the upward pace as the volume of time

deposits increased due to higher interest rates following the key interest rate hike. Asset

management company (AMC) deposits decreased significantly as VAT payments were made

and fund inflows into money market funds (MMFs) were down. Increased redemption in

equity funds with stock market rallies also contributed to a fall in AMC deposits.

Dec Dec Dec Dec Jun Jul Aug Change1

Call rate (1 day) 4.60 5.02 3.02 2.01 2.03 2.28 2.28 0

CD (91 days) 4.86 5.82 3.93 2.88 2.46 2.63 2.66 3

Treasury bonds (3 yrs) 4.92 5.74 3.41 4.44 3.86 3.80 3.55 -25

Corporate bonds (3 yrs) 5.29 6.77 7.72 5.56 4.77 4.75 4.53 -22

Treasury bonds (5 yrs) 5.00 5.78 3.77 4.98 4.44 4.38 4.00 -38

(End-period)

1. Basis point changes in May 2010 from the previous month

2010 2009

2008 2007

2006

Annual Q1 Q2 Q3 Q4 Annual Q1 Q2 Q3 Q4 Q2 Jun Jun1

M12 _-1.8 _-12.4 _-0.1 _2.1 _5.0 _16.3 _10.8 _17.6 _18.9 _17.8 _10.7 _10.5 ₄₀₀

M2 14.3 13.3 15.3 14.7 13.8 10.1 11.5 10.1 9.5 9.3 8.8 9.0 1,635

Lf3 _11.9 _11.6 _12.8 _12.1 _11.2 _Upper7 _8.8 _7.3 _7.5 _7.4 _8.94 _8.84 _2,089

(Percentage change from same period in previous year, average)

1. Balance at end June 2010, trillion won

2. M1 excluding corporate MMFs and individual MMFs while including CMAs 3. Liquidity aggregates of financial institutions (mostly identical with M3) 4. Preliminary

2009 2010

2008

Annual Jul Annual Jul May Jun Jul Jul1

Bank deposits 104.3 0.3 54.8 -0.6 18.6 5.4 3.5 1,048

AMC deposits 63.0 -0.3 -27.6 -2.2 4.2 -9.5 -6.5 323

(Monthly change, end-period, trillion won)

1. Balance at end July, trillion won

(30)

Total money supply Source: The Bank of Korea Interest rates Source: The Bank of Korea

9-4

9-5

9-6 Share of deposits by financial sector (M3 as of year-end)

Source: The Bank of Korea

(31)

10. Balance of payments

Korea’s current account surplus expanded in July to record US$5.88 billion thanks to robust exports.

The goods account accelerated the surplus to post US$7.38 billion from the previous month’s US$6.35 billion due to robust exports of semiconductors and cars and expanded payments received for the delivery of exported ships.

The service account deficit held steady to post US$1.66 billion from the previous month’s deficit of US$1.67 billion due to decreased payments for loyalties and business services although the travel account deficit expanded.

The income account surplus expanded to US$440 million from US$330 million a month earlier while the current transfer account shifted to a deficit of US$230 million from the previous month’s US$30 million surplus.

Although banks’ repayments of loan increased, the capital and financial account in July contracted the deficit as foreign investors’ net-buying of Korean shares and bonds rose.

Capital & financial account balance (US$ billion)

4.77 (Q4 2009) 5.71 (Q1 2010); 8.56 (Apr 2010) -12.04 (May) -1.23 (Jun) -0.05 (Jul)

The direct investment account increased the net outflow to register US$1.9 billion from the previous month’s deficit of US$470 million as locals’ overseas investment increased.

The portfolio investment account significantly expanded the net inflow to US$8.63 billion from US$1.89 a month earlier as foreigners bought more shares with expectations of Korea’s economic recovery.

The financial derivatives account deficit shrank to post US$80 million from the previous month’s net outflow of US$450 million as losses from overseas financial derivative transactions decreased.

The other investment account deficit expanded to US$6.7 billion from the previous month’s deficit of US$2.25 billion as banks’ repayments of short-term loan increased.

The current account surplus in August is likely to decrease from the previous month to record around US$1.5 billion due to the contracting goods account surplus.

Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 Jun Jul Jan-Jul

Current account -5.78 42.67 8.62 13.10 10.40 10.56 1.34 10.28 5.10 5.88 17.55

- Goods balance 5.67 56.13 8.31 17.58 14.70 15.54 7.43 15.65 6.41 7.38 30.53

- Service balance -16.67 -17.20 -1.93 -4.17 -5.33 -5.77 -6.04 -4.17 -1.67 -1.66 -11.87

- Income balance 5.90 4.55 0.92 0.29 1.69 1.65 0.76 -0.75 0.33 0.44 0.44

- Current transfers -0.67 -0.81 1.31 -0.60 -0.66 -0.86 -0.81 -0.45 0.03 -0.28 -1.55

(US$ billion)

2009 2010

2008

(32)

Capital & financial account balance Source: The Bank of Korea (balance of payments trend) Travel balance

Source: The Bank of Korea (balance of payments trend) Current account balance

Source: The Bank of Korea (balance of payments trend)

10-1

10-2

(33)

11. Prices and international commodity prices

11.1 Prices

Despite stabilized prices of industrial products, consumer prices in August increased 2.6 percent year-on-year and 0.3 percent month-on-month as prices of agricultural and livestock products and public utility charges increased.

Core consumer prices, which exclude the prices of oil and agricultural products continued to stabilize with a year-on-year increase of 1.8 percent. Consumer prices for basic necessities, a barometer for perceived consumer prices, were up 2.6 percent compared to the same month of the previous year.

Although prices of livestock products stabilized with supply expansion, prices of agricultural and livestock products soared as seasonal factors including bad weather conditions pushed up prices for vegetables and fruits.

Average temperature (Aug 1 to 20)

24.1℃(2010); 21.7℃(1971 to 2000)

Number of raining days (Aug 1 to 30, Taebaek area1₎

21 (2010); 13 (2009)

1. North Eastern part of South Korea which usually has low rainfall Source: Korea Meteorological Administration

Prices of agricultural & livestock products in Aug (m-o-m, %)

Radish (20.2), Chinese cabbage (15.0), spinach (46.6), lettuce (41.3), watermelon (39.8), peach (18.7), grape (-26.6), green onion (-9.3), chicken (-5.8)

Despite higher prices of some processed foods including sugar, overall prices of industrial products remained stable as prices of oil products fell.

International oil prices (Dubai crude, US$/barrel)

73.6 (Feb 2010) 77.3 (Mar) 83.6 (Apr) 76.8 (May) 74.1 (Jun) 72.6 (Jul) 74.1 (Aug)

Won/dollar exchange rate (average)

1,157 (Feb 2010) 1,138 (Mar) 1,117 (Apr) 1,163 (May) 1,212 (Jun) 1,207 (Jul) 1,180 (Aug)

Public utility charges in August edged up from the previous month as the government raised

electricity charges (up 2.0%)and other public utility charges. Personal service charges have

risen for two consecutive months with an increase of 0.2 percent month-on-month.

Consumer price inflation in major sectors

Public utility Industrial

products _productsOil Total

Agricultural, livestock & fishery

products

Housing rents

Personal services

Month-on-Month (%) 0.3 2.8 0.0 -0.6 0.2 0.4 0.2

Contribution (%p) 0.35 0.24 0.00 -0.04 0.02 0.06 0.06

Year-on-Year (%) 2.6 8.9 2.5 5.3 2.0 0.7 2.2

Contribution (%p) 2.56 0.76 0.79 0.31 0.18 0.12 0.76

Consumer price inflation

2009

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Month-on-Month (%) 0.4 0.1 -0.3 0.2 0.4 0.4 0.4 0.3 0.5 0.1 -0.2 0.3 0.3

Year-on-Year (%) 2.2 2.2 2.0 2.4 2.8 3.1 2.7 2.3 2.6 2.7 2.6 2.6 2.6

Core consumer prices(y-o-y) 3.1 2.7 2.6 2.5 2.2 2.1 1.9 1.5 1.5 1.6 1.7 1.7 1.8

(m-o-m) 0.1 0.1 0.1 0.2 0.1 0.1 0.2 0.1 0.2 0.3 0.2 0.2 0.2

Consumer prices for basic

1.3 1.7 1.5 2.3 3.3 3.8 3.4 2.9 3.2 3.0 2.8 2.7 2.6

necessities (y-o-y)

2010

(34)

Contribution to consumer price inflation Source: Statistics Korea (consumer price trend) Prices

Source: Statistics Korea (consumer prices, core inflation) & The Bank of Korea (producer prices)

11-1

11-2

11-3

Consumer price inflation

(35)

11.2. International oil and commodity prices

In August, international oil prices inched up month-on-month while domestic oil product prices edged down from the previous month.

International oil prices (Dubai crude) in early August advanced up to the upper US$70 range as uncertainties over fiscal problems in the southern Europe eased. The increase, however, was limited during the month due to concerns over the possible slowdown of economic recovery in the US and other major countries.

Record high oil prices (spot prices, US$/barrel)

Dubai crude: 141 (Jul 4, 2008), Brent crude: 145 (Jul 3, 2008), WTI crude: 146 (Jul 14, 2008)

Although prices of international oil and oil products increased slightly, domestic prices of oil products edged down month-on-month as the won’s value against the dollar stabilized.

Won/dollar exchange rate (average)

1,207 (Jul 2010) 1,180 (Aug)

Prices of non-ferrous metals and grain in August increased due to robust demand in emerging markets such as China and concerns over supply disruption in major grain producing countries hit by aggravating weather conditions.

Despite uncertainties over the pace of global economic recovery, prices of major non-ferrous metals such as tin and copper increased as China’s demand for the metals remained strong.

International prices of grain including wheat hiked with concerns over supply shortage due to a severe drought and the consequent ban on grain exports in Russia.

Prices of non-ferrous metals and grain in Aug (m-o-m, %)

Corn (8.8), wheat (23.5), soybean (6.3), raw sugar (7.0), copper (8.1), aluminum (5.7), nickel (9.7), lead (13.2), tin (13.7)

(Won/liter, period average)

Annual Annual Annual Feb Mar Apr May Jun Jul Aug

Gasoline prices 1,526 1,692 1,601 1,664 1,691 1,725 1,732 1,715 1,722 1,716

Diesel prices 1,273 1,614 1,397 1,443 1,469 1,507 1,522 1,509 1,518 1,513

2007 2008 2009 2010

Source: Korea National Oil Corporation

(Period average)

2,400 2,536 2,079 2,290 2,269 2,329 2,273 2,285 2,477 2,687

2009 2008

2007

* A weighted average index of 17 major commodities

2010

Dubai crude 68.4 94.3 61.9 73.6 77.3 83.6 76.8 74.1 72.6 74.1

Brent crude 72.8 97.5 61.7 73.9 79.0 84.8 75.2 74.9 75.7 77.2

WTI crude 72.3 99.9 61.9 76.5 81.3 84.5 73.7 75.3 76.3 76.6

(US$/barrel, period average)

2007 2008 2009 2010

Source: KOREAPDS

(36)

International oil prices Source: Korea National Oil Corporation

11-4

11-5

11-6 International commodity prices

Source: Bloomberg (CRB) & The Bank of Korea (Reuters index)

* CRB demonstrates futures price index of 21 commodities listed on the US Commodity Transaction Market, including beans and other crops, crude oil and jewelry.

(37)

12. Real estate market

12.1 Housing market

In August, nationwide apartment sales prices decreased 0.03 percent month-on-month.

Apartment sales prices in the Seoul metropolitan area fell for the fifth consecutive month in August with a 0.5 percent decrease as market sentiment remained chilled. Apartment prices of Seoul retreated 0.5 percent in August while those in Gyeonggi province and Incheon decreased 0.6 percent and 0.3 percent, respectively.

Meanwhile, apartment sales prices in areas excluding the Seoul metropolitan area

continued to increase led by South Gyeongsang province (up 0.9%), Busan (up 0.8%)and

North Jeolla province (up 0.6%). Apartment prices in 5 metropolitan cities and other cities

advanced 0.4 percent from a month earlier.

Apartment rental prices in August were up 0.4 percent month-on-month led by areas excluding the Seoul metropolitan area due to strong seasonal demand during school vacation. In the Seoul metropolitan area, however, apartment rental prices remained stable with contracted transactions.

Apartment sales transactions in July declined 5.1 percent from 65,197 a month earlier to post 61,878. The transactions were down 31.7 percent from a year earlier and 23.4 percent compared with the monthly average of 81,000 recorded in the same month for the past 3 years.

Annual Annual Annual Annual Q4 Mar Apr May Jun Jul Aug Aug 21 _{Aug 9}1 _{Aug 16}1 _{Aug 23}1

Nationwide 7.6 1.9 0.8 4.5 2.0 0.8 0.7 0.5 0.4 0.4 0.4 0.06 0.08 0.12 0.14

Seoul 11.5 2.2 -1.8 8.1 2.3 0.7 0.5 0.3 0.2 0.1 0.2 0.01 0.04 0.08 0.14

Gangnam2 _11.3 _0.5 _-3.6 _10.4 _2.7 _0.5 _0.5 _0.3 _0.3 _0.2 _0.3 _0.00 _0.03 _0.09 _0.13

Gangbuk3 _11.8 _4.6 _0.5 _5.4 _1.9 _0.9 _0.5 _0.2 _0.0 _-0.1 _0.1 _0.02 _0.04 _0.07 _0.16

Seoul metropolitan area 11.7 2.1 -0.4 5.6 1.8 0.7 0.6 0.3 0.1 0.1 0.2 0.04 0.05 0.08 0.12

5 metropolitan cities 3.0 1.1 1.6 3.9 2.6 1.0 1.0 0.8 0.7 0.6 0.7 0.10 0.14 0.18 0.10

1. Weekly trends 2. Upscale area of Southern Seoul 3. Northern Seoul Source: Kookmin Bank

2006 2007 2008 2009 2010

Nationwide apartment rental prices

(Monthly average, thousand)

Apartment sales transactions

Annual Annual Annual Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Nationwide 84 74 77 81 91 81 90 87 82 82 62 67 80 73 62 65 62

2007 2008 2009 2010

Annual Annual Annual Annual Q4 Mar Apr May Jun Jul Aug Aug 21 _{Aug 9}1 _{Aug 16}1 _{Aug 23}1

Nationwide 13.8 2.1 2.3 1.6 0.9 0.3 0.2 0.1 0.0 -0.1 -0.0 0.00 -0.02 0.00 0.02

Seoul 24.1 3.6 3.2 2.6 0.3 0.0 -0.2 -0.4 -0.6 -0.5 -0.5 -0.06 -0.10 -0.07 -0.14

Gangnam2 _27.6 _0.5 _-1.9 _3.9 _0.2 _0.0 _-0.1 _-0.4 _-0.5 _-0.5 _-0.5 _-0.08 _{-0.13 -0.06} _-0.09

Gangbuk3 _19.0 _8.3 _9.4 _0.9 _0.4 _0.0 _-0.3 _-0.3 _-0.6 _-0.5 _-0.4 _-0.03 _{-0.07 -0.07} _-0.19

Seoul metropolitan area 24.6 4.0 2.9 0.7 0.2 0.0 -0.2 -0.4 -0.7 -0.7 -0.5 -0.06 -0.12 -0.08 -0.10

5 metropolitan cities 2.1 -0.6 1.0 2.8 1.9 0.7 0.8 0.6 0.5 0.4 0.4 0.06 0.07 0.09 0.10

1. Weekly trends 2. Upscale area of Southern Seoul 3. Northern Seoul Source: Kookmin Bank

2006 2007 2008 2009 2010

(38)

Apartment prices by region

Source: Kookmin Bank (national housing price trend)

Weekly apartment sales prices and monthly transaction volume

Source: Kookmin Bank (weekly APT price trend) & Korea Land Corporation (monthly land trade trend) Real estate prices

Source: Kookmin Bank (national housing price trend)

12-1

12-2

(39)

12.2 Land market

Nationwide land prices in July remained unchanged month-on-month halting the upward

trend in previous months. Land prices in July were 2.26 percent lower than the pre-crisis

peak reached in October 2008.

Land prices in the Seoul metropolitan area fell 0.04 percent from the previous month as

Seoul (down 0.07%)accelerated the downward pace while Gyeonggi province (down

0.07%)and Incheon (down 0.07%)shifted to a decrease for the first time in 16 months.

Land price increases in Seoul metropolitan area (m-o-m, %) 0.25 (Mar 2010) 0.15 (Apr) 0.11 (May) 0.03 (Jun) -0.04 (Jul)

Also, land price increases in areas excluding the Seoul metropolitan area are steadily

decelerating.

Land price increases in areas excluding Seoul metropolitan area (m-o-m, %) 0.12 (Mar 2010) 0.11 (Apr) 0.09 (May) 0.07 (Jun) 0.06 (Jul)

Nationwide land transactions in July recorded 171,000 land lots, down 6.6 percent from the

previous month, which is equivalent to 78.0 percent of a monthly average of 220,000 in the

same month of the past 5 years.

Land transactions decreased in all areas excluding North Gyeongsang province (up 23.4%)

and South Jeolla province (up 9.3%)in terms of land lots.

Land prices by region

Annual Q4 Annual Q3 Annual Q1 Q2 Q3 Q4 Jan Feb Mar Apr May Jun Jul

Nationwide 3.88 1.15 -0.31 1.18 0.96 -1.20 0.35 0.88 0.94 0.25 0.23 0.21 0.14 0.10 0.05 0.00

Seoul 5.88 1.90 -1.00 1.59 1.40 -1.38 0.68 1.30 0.81 0.25 0.26 0.21 0.05 0.00 -0.03 -0.07

Gyeonggi 4.22 1.14 -0.26 1.28 1.22 -1.62 0.37 1.13 1.36 0.35 0.32 0.29 0.25 0.19 0.09 -0.01

Incheon 4.86 1.13 1.37 2.01 1.99 -1.39 0.53 1.16 1.70 0.45 0.33 0.30 0.21 0.17 0.06 -0.01

2007 2008 2009 2010

Source: Korea Land & Housing Corporation

(Land lot, thousand)

Land sales transactions

Annual1 _Annual1 _Annual1 _Jul _Aug _Sep _Oct _Nov _Dec _Jan _Feb _Mar _Apr _May _Jun _Jul

Nationwide 208 208 203 222 206 226 212 207 241 170 168 213 203 177 183 171

Seoul 33 26 22 26 25 28 25 19 21 16 17 20 17 14 13 10

Gyeonggi 49 45 46 50 48 56 52 48 58 39 34 44 42 37 42 38

Incheon 13 13 10 11 10 13 14 11 12 6 7 9 9 10 8 8

2007 2008 2009 2010

(40)

Land trade volume

Source: Korea Land Corporation (land trade trend)

12-4

12-5

12-6

Land and consumer prices since 1970s

Source: Korea Land Corporation (land prices) & Statistics Korea (consumer prices)

Land prices by region

(41)

13. Composite indices of business cycle indicators

The cyclical indicator of coincident composite index increased 0.5 points month-on-month in

July, showing the continuous upward trend of the economy since March 2009.

Among components of coincident composite index, only the service activity index decreased

while the other seven components such as the value of construction completed and the

wholesale & retail sales index increased.

Components of coincident composite index in July(m-o-m)

Service activity index (-1.0), value of construction completed (2.7%), wholesale & retail sales index (2.0%), volume of imports (1.9%), mining & manufacturing production index (1.8%), domestic shipment index (1.6%), manufacturing operation ratio index (1.0%), number of non-farm payroll employment (0.2%)

The year-on-year leading composite index in July climbed 0.8 percentage points from the

previous month but declined by 0.4 percentage point year-on-year due to last year’s high

base effect.

Only the indicator of inventory cycle of the index went down, while the other seven

components such as the value of construction orders received, the value of machinery

orders received, and the value of capital goods imports were up.

Components of the leading composite index in July(m-o-m)

Indicator of inventory cycle (-3.5%p), value of construction orders received (13.8%), value of machinery orders received (4.3%), value of capital goods imports (2.7%), ratio of job openings to job seekers (2.6%p), consumer expectations index (2.2p), composite stock price index (0.7%), liquidity in the financial institutions (0.4%), net terms of trade index (0.0%), spreads between long & short term interest rates (0.0%p)

Jan Feb Mar Apr1 _May1 _Jun1 _Jul1

Coincident composite index (m-o-m, %) 0.8 1.2 0.9 0.9 0.7 0.8 0.9

Cyclical indicator of coincident composite index 99.3 100.0 100.6 101.1 101.4 101.7 102.2

(m-o-m, p) 0.4 0.7 0.6 0.5 0.3 0.3 0.5

Leading composite index (m-o-m, %) 0.3 -0.2 0.2 -0.2 0.5 0.4 0.8

12 month smoothed change

11.3 10.3 9.7 8.6 7.9 7.1 6.7

in leading composite index (%)

(m-o-m, %p) -0.3 -1.0 -0.6 -1.1 -0.7 -0.8 -0.4

1. Preliminary

2010

(42)

Coincident and leading composite indices Source: Statistics Korea

13-1

13-2

13-3

Cyclical indicator of coincident composite index Source: Statistics Korea

(43)

Background

Although the Korean economy posted a 7.6 percent growth in the first half of 2010, the fruit

of the economic performance has not trickled down enough to the real economy. Against

this backdrop, the Korean government prioritizes creating jobs and supporting the working

class in revising the tax system : Corporations creating jobs will be given tax incentives,

non-essential tax exemptions and reductions will be lifted to improve fiscal situation as there

have been worries over narrowing tax base and welfare spending will be increased to

prepare for an ageing society. In addition, the government revises the tax system in a way to

avoid tax evasion.

Key revisions

First, tax incentives are given to the companies creating jobs: 1) investment tax credit to be

given on the basis of the number of people hired rather than on the basis of the amount of

money invested, 2) up to 20 percent of tax reduction for the investment given to enterprises

and those with FDI if they increase hiring, 3) industries with a significant labor-inducing

effect to be added to the list of SMEs eligible for tax incentives, and 4) companies closing

overseas business and returning to Korea to be offered income and corporate tax reductions

at the same level as given to companies with FDI.

2010 Tax Revision

(44)

Second, the tax revision is directed toward trickling down the economic recovery to the

working class: 1) withholding tax rate for low income daily workers to be reduced from eight

percent to six percent, 2) the tax deductions for small-and medium-sized businesses, such

as credit card sales tax deduction and VAT deduction for restaurant owners on their

purchase of agricultural and marine products, not to sunset until 2012, 3) new tax deduction

to be introduced on the funds set up to guarantee cooperation between conglomerates and

SMEs, 4) a sunset clause on tax credit given to companies offering cash settlement to SMEs

to be extened until 2013, and 5) income tax deduction ceilings for donation to be raised.

Third, the tax revision is aimed at supporting sustainable growth by nurturing new growth

engines and increasing support to raise corporate competitiveness, and preparing for an

ageing society: 1) R&D tax credit to be expanded to cover 3D technologies, next generation

LCD technologies, and IT convergence technologies, 2) reduced tariff rates to be applied to

the imports of materials and parts used in new growth engine related industries, 3)

corporate restructuring-related tax incentives to be extended, 4) child tax credit given to

households with more than two children to be doubled, and 5) tax credit for retirement

pension and savings to be increased.

Fourth, the tax revision is aimed at broadening the tax base by withdrawing unnecessary tax

exemptions and reductions: 1) 16 out of 50 tax exemptions and reductions to expire, 2) sales

tax credit for the reported sales increase to be abolished and tax exemptions for dividend

yields given to long-term stock owners to sunset, 3) those who earn more than 0.5 billion

won annually subject to bookkeeping investigation by tax accountants, and 4) VATs to be

imposed on aesthetic plastic surgeries, veterinarian treatment, and private educational

institutions for adults.

Details of measure

Ⅰ. Revisions to facilitate creating jobs

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may be a deterrent to job creation.

- SMEs will be encouraged to expand flexible work hours with the different method to count

part-time workers.

- To help family businesses keep hiring at the time of inheritance, the scope of and

requirement for inheritance tax exemptions will be expanded and eased.

2. Increasing support for industries with a high job-creation potential

- Industries with a high employment inducement effect such as cleaning, security, market

and public opinion survey, and personnel supply services will be considered as SMEs

eligible for SME tax incentives.

- Companies which close down foreign factories and return to Korea to establish businesses

will receive income and corporate tax deductions of 100 percent for the first three years and

50 percent for the next two years.

- To promote provincial economic activities, individual consumption tax exemptions for

membership golf courses in the regions outside the Seoul and Gyonggi province will be

extended from the end of 2010 to the end of 2012.

3. Supporting job creation for the vulnerable class

- New tax incentives for employing handicapped persons will be adopted, by which

companies will receive 50 percent income and corporate tax deduction for four years if

conditions are met.

- Social enterprises employing workers from vulnerable classes will be eligible for the

minimum tax rate of 7 percent as are SMEs, along with the three year extension of the

social enterprise tax exemption to the end of 2013.

Ⅱ. Supporting low and middle income classes

1. Supporting low income class

- The withholding tax rate for daily workers will be lowered from 8 percent to 6 percent.

- College students’ work scholarships will be non-taxable to prevent those students from

losing basic livelihood support because of the income from the scholarship.

2. Supporting farmers, fishermen, and the handicapped

- To stabilize the income of elderly farmers as well as to support farming, the transfer tax

deduction for self-cultivated farmland which is eligible for farming transfer support will be

extended form the end of 2010 to the end of 2012.

- VATs for farmers and fishermen will be lowered by expanding the scope of agricultural

machinery eligible for oil tax exemption and equipment and materials eligible for VAT

refund.

- The brewery business will be promoted by allowing more ingredients and additives.

- Oil tax refund for small cars will be extended from the end of 2010 to the end of 2012.

- Audio books will be included in the aids for the disabled, allowing such books the lowest

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3. Supporting small- and medium-sized businesses

- Tax deduction for credit card payment will be extended from the end of 2010 to the end of

2012 to reduce the tax burden on small to medium sized businesses including

accommodations and restaurants. Restaurants will be eligible for deemed input VAT until

the end of 2012.

- When small business owners who gave up their businesses restart business or get jobs,

they are eligible for income tax or VAT exemptions of up to 5 million won applied to those

without any property, and the tax exemption will be extended until the end of 2012.

4. Supporting small- and medium-sized enterprises (SMEs)

- To encourage cooperation between large enterprises and SMEs as well as support SMEs,

the new tax deduction of 7 percent for contributions to the Mutual Support Guarantee Fund

will be introduced.

- Corporate tax exemptions for dividend large enterprises receive on investment in partner

SMEs will be extended from the end of 2010 to the end of 2013.

- Tax exemptions given to large enterprises when they make cash or cash equivalent

payments to SMEs will be extended until the end of 2013.

- To support SME establishment and family business inheritance, tax deductions of 500

million won for up to 3 billion won SME startup donations and for up to 3 billion won stock

donations for family business inheritance will be extended until the end of 2013, along with

the low donation tax rate of 10 percent.

- Smaller breweries will be eligible for a liquor license, which is expected to lower market

entry for those breweries.

5. Encouraging donations

- Income tax deduction rates for donations will be simplified from three levels to two levels,

along with deduction ceilings for donations being raised from 20 percent of the donation to

30 percent for private donations and from 5 percent to 10 for corporate donations.

- Bona fide stock donations made through non-profit organizations will be exempted from

donation taxes even when the donation exceeds the share holding limitation on one

company.

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technologies such as carbon reduction and environment-friendly vehicles becoming eligible

for foreign investment tax reduction if conditions are met.

- The VAT exemption for research services by Industry-Academic Cooperation Foundation in

universities will be extended until the end of 2013.

- The tax deduction of 3 percent for overseas resources development investment and that of

7 percent for facility investment to improve pharmaceutical quality control will be extended

until the end of 2013.

2. Enhancing corporate competitiveness

- The expiration of tax incentives to promote corporate structural reform will be pushed back

2 years to the end of 2013.

- As the Korean International Financial Reporting Standards (K-IFRS) will be compulsory from

2011, the corporate tax acts will be revised to facilitate the adoption of the new standards.

3. Improving universities’ financial health

- Tax incentives for corporate investment in universities, which allow the investment to be

counted as expenses if the investment is made by university-owned corporations of which

the shares the universities hold 100 percent, will be extended until the end of 2013.

- The suspension of the transfer tax incurred in case of for-profit asset transactions by

universities will be extended until the end of 2013.

- The VAT exemption for private investment in building private university facilities will be

extended until the end of 2012.

4. Dealing with low birth rates and an ageing society

- Households with more than two children will receive tax deduction of 1 million won, an

increase from 500,000 won, and two million won per child from the third child.

- Tax deduction for investment in building welfare facilities including at-work childcare

facilities will be increased from 7 percent to 10 percent, along with 7 percent tax deduction

for building rest and sport facilities at work place.

- The pension tax deduction will be increased from 3 million won to 4 million won.

- The tax deduction for lump-sum retirement payments will be reduced from 45 percent to 40

percent to encourage transferring into a pension program.

- To improve welfare for the elderly, nursing homes will be eligible for SME special tax

reduction of 5 to 30 percent.

Ⅳ. Revisions to improve fiscal situations

1. Broadening tax base by encouraging honest reporting

- Those who are obliged to issue receipts for cash payment and earn 0.5 billion won a year

are responsible for proving the reliability of their bookkeeping by tax accountants when

they report their income.

- Income tax reductions for education and medical fees given to self employed business

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2012, if conditions are met: the owners need to accept credit cards, issue receipts for cash

payment, use double-entry bookkeeping, and honestly report their income. In addition, if

those responsible for double-entry bookkeeping do not practice what is required, they will

be subject to more tax with halved tax reduction for essential business expenses.

- The tax rate applied to business owners for not issuing receipts will be increased from

additional 1 percent to 2 percent, while those who make fake receipts are subject to 2

percent additional tax.

- Those who write fake contracts to avoid the real estate transfer tax will not be eligible for

tax exemption or reduction related to the transactions, which will help the reporting of real

estate transaction based on market price take hold.

2. Lifting unnecessary tax exemptions and reductions

- Tax exemptions and reductions will be lifted or revised when their purposes have been

achieved, and their effect is not satisfactory. The tax exemptions and revision will be

revised in a way to help create jobs and nurture green growth engines.

- Investment tax deductions on the basis of the amount of money will be replaced with the

investment tax deductions based on the jobs the investment can create.

- Tax deductions for facility investment will be given to limited number of companies.

- Sales tax credit for the reported sales increase will expire.

- Individual consumption tax exemptions will be abolished for luxurious restaurants.

- Tax exemptions for dividend yields from stocks owned for more than three years will

sunset.

- Tax credits for ship fund, scheduled to expire at the end of 2010, will be extended until the

end of 2013, while the size of the funds eligible for the tax credit will be reduced from 0.3

billion won to 0.1 billion won.

- Investment tax credits for venture funds or companies will expire.

- Transportation tax credits will be reduced for bio-diesel consumption, while bio-diesel

made from recycled cooking oil will receive tax exemption until the end of 2012.

- Stock transactions by Korea Post will be taxed.

- Tariff reduction on imports of national defense products and plane navigation products will

be abolished.

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IMF expands credit line as part of the G-20 discussions

On August 30, the International Monetary Fund (IMF) expanded and enhanced its lending

facilities to help prevent financial crises. As part of the efforts to enhance the organization’s

crisis-prevention mechanism, the IMF decided to double the duration of the credit line,

remove the cap on lending under the existing Flexible Credit Line (FCL) and establish a new

Precautionary Credit Line (PCL) for members with sound policies who nevertheless may not

meet the FCL’s high qualification requirements. These reforms come as the G-20 has made

the strengthening of the global financial safety net one of the agenda items for the G-20

Summit in November. The Korean government has taken a leading role in advancing this issue.

Korea grows 1.4% in the second quarter

(Preliminary)

Korea’s real GDP grew 1.4 percent in the second quarter of 2010 (preliminary)compared to

the previous quarter. This is a 0.1 percentage point downward revision from the advance

estimates released on July 26.

Economic

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On the production side, the manufacturing sector was up 5.2 percent from the previous

quarter thanks to the growth in machinery equipment, fabricated metal products and

automobile manufacturing. On the expenditure side, private consumption rose by 0.8 percent

while facility investment and exports of goods continued robust growth by increasing 9.1

percent and 7.0 percent, respectively.

IMF upgrades Korea’s growth forecast for 2010

The International Monetary Fund (IMF) on September 1 upgraded its 2010 growth forecast GDP

Agriculture, forestry and fishery

Manufacturing

Construction

Services3

Private consumption

Government consumption

Facility investment

Construction investment

Goods exports4

Goods imports4

GDI

<GDP by production and expenditure*>

2009