Economic policy direction for 2007
I. Domestic and external economic conditions in 2007
External economic conditions
(1) The world economy is projected to continue a strong growth over than the average growth in the past decade. However, it is expected to moderate slightly from 2006.
The US economy is forecasted to contract slightly and expand by a mid 2 percent, a little below its growth potential of around 3 percent.
Japan and the eurozone are projected to grow around 2% and China around 10% above its potential, which is expected to compensate moderation of the US economy.
(2) International oil prices are predicted to stabilize downwardly due to decreasing demand for crude oil. However, given the lack of surplus production capacity of oil producing countries, the high oil price of upper US$50 per barrel (Dubai crude basis) would persist.
(3) The international financial market will likely experience protracted weak dollar trend in case the gap between the US and other regions in growth and interest rate narrows. The Japanese yen may reverse course to weakness if Japan’s policy rate raise is delayed.
(4) The global IT business is predicted to expand at a similar level to 2006 led by semiconductors and displays.
In a nutshell, external conditions in 2007 are forecasted to improve more than 2006 in overall terms on the back of moderating global growth and some downside risks. The downside risks to the world economy include: the possibility of wider moderation of the US growth, the possibility of oil price surge with materialization of geopolitical risks or a supply shock, and the possibility of expanding uncertainties such as foreign exchange volatility in the process of adjusting global imbalances such as the US current account deficit.
Nonetheless, if the oil prices stabilize downwardly out of recent surge, it could serve as a positive factor to domestic demand.
Domestic economic conditions
(1) The Korean economy has achieved growth in line with the initial forecast so far. However, the momentum for domestic demand such as consumption has weakened slightly.
Consumption growth has been constrained by slow improvement in real purchasing power due to laggard GNI since 2005 and the increase in household debt repayment.
In case international oil prices stabilize downwardly, the GNI growth rate would near that of GDP, supporting consumption recovery from the second half of the year.
Facility investment continues to be robust. However, structural factors such as the absence of new business models have set a limit to expansion. Sluggishness in construction investment prevails affected by building construction in the private sector.
On the other hand, exports remain more robust than expected supported by brisk overseas demand. From January to November 2006, exports increased 14.8 percent.
(2) Some risks exist in the real estate market and the financial and foreign exchange market. There is a possibility that heated expectations for higher real estate prices may not be curbed due to time lag between now and the time of materialization of promised housing supply.
If the herd behavior continues in the financial and foreign exchange markets, a change in economic conditions might link to household default and insolvency of financial institutions.
(3) Non-economic factors such as the North Korean nuclear issue and the presidential election may pose as uncertainties to the economy.
II. Major policy tasks
Managing the macroeconomy stably
(1) Operating the macroeconomic policy to compensate the economy·
The government will opt for fiscal frontloading, while encouraging investments of public corporations as planned and identifying new demands for investment.
The government will make efforts to stabilize foreign exchange through more broad-based adjustment of foreign exchange supply and demand. The Bank of Korea, on the other hand, will flexibly operate the interest rate policy taking into account prices and economic conditions.
(2) Laying the foundation for stable prices and real estate market
The government will minimize the factors driving up public utility charges, continue pursuing the agricultural, fishery and livestock reserve projects, and promote price stabilization by improving institutions.
The government will speed up housing supply and firmly implement the anti-speculation measures, while improving institutions to reduce the real sale price.
(3) Preempting risks of the financial and foreign exchange markets
The government will strengthen monitoring of household loans and compensation for land expropriation to ensure no excessive liquidity, while enhancing financial supervision and actively coping with any risk of insolvency.
Along with strengthened prudence guide for short-term foreign borrowings, institutions will be improved toward reducing the factors of foreign borrowings.
A response system will be established to allow constant monitoring and managing of finance-related risks.
Creating jobs through investment promotion
(1) Upgrading the business environment constantly
The government will ensure implementation of the tasks enlisted in the “Comprehensive Measures to Improve the Business Environment” of September 28, 2006 as planned and continue to identify additional tasks through consultation with the five economic organizations.
Tax supports will continue including extension of sunset clauses such as temporary investment tax exemption.
Policy on large business groups will include legislation as scheduled and permit of selective enlargement of factories in the Seoul metropolitan area and its vicinity.
(2) Strengthening competitiveness of services and SMEs
The government will adequately monitor and review the implementation of the tasks set out at the “Comprehensive Measures to Boost Services Competitiveness” of December 14, 2006. Efforts will accompany identifying and fostering new promising business categories with high growth potential.
SME restructuring will be facilitated by supporting business transfer and revitalizing mergers and acquisitions. SME competitiveness will also be promoted by expanding R&D, encouraging win-win cooperation between large businesses and SMEs and improving financial assistance.
(3) Compensate sluggish construction investment
Private housing construction will be boosted through early easing of regulations.
The government will proceed with construction of the happiness, company, and innovation towns as planned, while trying to revitalizing the public-private partnerships (PPPs) by improving the institutions on BTL (Build-Lease-Transfer).
While faithfully implementing the investment plans of public corporations, the government will work to allow national pension funds to invest in public rental housing.
Stabilizing people’s livelihood
(1) Establishing the grounds for job and housing security of ordinary people
The government will upgrade employment assistance by expanding services provided by the Employment Support Center, while substantiating the features of vocational training and youth employment supports.
Grounds for job creation in the social service sector will be fostered, while custom-made supporting measures for traditional markets and small traders will be promoted.
The government will pursue expanded reservation of long term rental housing for those below middle class while extending financial support for key money and housing lease guarantee funds.
(2) Reviewing measures to lesson financial burden of ordinary people and raise their accessibility to financial services, while extending more tax support to them
Measures to boost microfinance shall be pursued without hitch, which include broadening the business and sales scope of financial institutions providing microcredit services and expanding microfinance services to the poor.
Ordinary people’s financial losses and damages arising from unlawful money lending will be minimized through reshuffling the subject managerial and supervisory systems via consultation amongst lending institutions.
The government will initiate improvements to the credit card service charge rate applied to member shops with a view to alleviating the financial burden of the lower income people.
The government will bolster tax support for wage earners, the disabled and farmers.
(3) Substantiating social safety net and expanding social investment
The government will improve the basic livelihood guarantee program and the medical insurance payment system. It will also pave the way for introducing a basic old age pension scheme for the low income elderly.
Welfare for the disabled shall be expanded while welfare service delivery system is to be promoted aimed at enhancing people’s sentiment on the welfare services.
Social investment in children, health care and the old age life will be gradually expanded with a view to promoting welfare and securing quality human capital for the future.
Upgrading and making the economic system transparent
(1) Advancing the financial market system on a continual basis
The government will lay the institutional framework in response to the concurrent engagement in multiple financial services and market opening while upgrading the capital market system in Korea. Necessary infrastructure will be established to make the financial system effective.
The government will review the possibility of running a more diversified foreign currency exchange market on top of the won/dollar exchange market. Further efforts will be made to upgrade the foreign exchange market infrastructure including expanding trade volume and advancing trade practice.
(2) Improving flexicurity of the labor market
Follow-up measures on the legislation on advancing labor relations will be spearheaded as scheduled. Additional tasks will be identified aimed at enhancing the labor market flexibility.
Measures addressing non-regular workers will be faithfully implemented. Special programs for the labor market stability will be expanded including broader application of social insurance payments and unemployment benefits.
(3)Upgrading the fiscal institutions and the tax system
The national debt management system shall be effectivized while the government accounting and contracting system being advanced. Efforts to make government properties more value-added shall be spearheaded.
The government will improve the tax reduction and exemption regime while preparing for a faithful implementation of Earned Income Tax Credit (EITC). Transparency of the tax source and convenience of the taxpayers will be promoted continuously.
(4) Fostering a basis for innovation-driven economy
The government will expand R&D investment and efficiency. A base for fostering quality human capital will be established through innovation in university education.
The government will fully utilize various IT technologies such as RFID (Radio Frequency Identification), thereby enhancing transparency and productivity in all sectors including public, industrial and welfare sectors.
Strengthening opening and international cooperation
(1) Expanding multi-track FTA negotiations
The government will accelerate the Korea-US FTA negotiations and others while boosting the momentum of FTA talks through joint studies.
The government will keep monitoring the effects and implementation of the concluded FTAs.
(2) Promoting measures to boost inbound and outbound FDIs
The government will strengthen efforts to attract foreign investment. The efforts include improving the foreign investment attraction system and business and living environments for foreign investors in Korea. Efforts will also be made to enhance international credibility of Korea through IRs.
Measures to boost outbound FDI will be drawn up and implemented with emphasis on streamlining regulations on direct and indirect overseas investment and strengthening information provision.
(3) Reinforcing economic and financial cooperation
The government will address pending trade issues while expanding economic cooperation with advanced countries through various dialogue channels.
Mutually beneficial economic cooperation will be strengthened with BRICs. An international finance coordination system will be established through global financial cooperation projects.
(4) Accelerating efforts to build a Northeast Asia's financial and logistics hub and substantiating inter-Korean economic cooperation
The government will streamline laws and improve institutions to build a financial hub. At the same time, it will earnestly expand the infrastructure and upgrade the logistics system to make Korea a logistics hub.
Institutional base will be reinforced for inter-Korean economic cooperation projects while strategies will be drawn up to form an inter-Korean joint economic community in the long run.
Reinforcing preparing for the future
(1) Seeking a new national development strategy by efficiently implementing Vision 2030
The government will successfully proceed with Vision 2030 by putting its core tasks on the public agenda.
(2) Thoroughly preparing for low fertility and ageing society
The government will make financial support and improve institutions to create a favorable environment for child birth and rearing. The government will also lay a foundation for facilitating employment of the aged.
Efforts will be made to improve public pension and insurance schemes. The efforts include reform of the national pension service and measures for fiscal stability of national health insurance.
(3) Expanding sustainable and advanced demand and supply structure of energy
The government will establish an advanced and highly efficient energy use system while coming up with energy welfare measures including setting minimum energy use standards.
The government will also secure energy resources in a stable manner. To that end, it will develop overseas as well as new and renewable energy resources while disseminating the new energy resources.
(3) Seeking a balanced national development while improving statistics infrastructures
The government will devise and pursue the 2nd phase of balanced national development strategy while coming up with a comprehensive measure for the development of rural and fishing villages.
Statistics infrastructures will be improved for the areas of real estate and human resources.
III. The Korean economy in 2007
(Growth) The Korean economy in 2007 is expected to grow around 4.5 percent, slightly lower than that of 2006. Growth is estimated to be higher in the second half amid the trend of “lower growth in the 1st half and higher in the 2nd.”
Private consumption is likely to moderate to register around 4 percent growth given insufficient improvement in employment and household income conditions as well as the low level of household savings rate.
Facility investment is projected to continue a solid mid 6 percent growth, considering the favorable leading indicators.
Construction investment is expected to reverse its course to post a positive growth, derailing from the decreasing trend of 2006. However, substantial improvement within a short time period is unlikely given the sluggishness in construction orders from the private sector.
Exports are estimated to sustain robustness in 2007 as well, albeit slower on-year growth of around 10 percent is expected.
(Employment) Around 300,000 new jobs are likely to be added in 2007, keeping up with the level of long-term trend.
Amid on-going trend slowdown of job creation capacity of the economy, employment conditions in 2007 are expected to be less favorable than the previous year.
Still, job creation similar to 2006 is anticipated on the back of projected jobs growth in social services with fiscal support.
(Consumer prices) Consumer prices are expected to stabilize at around 2.7 percent.
Consumer prices are likely to gain pace from the previous year as the effects of domestic demand recovery appear in time lag. However, the prices are likely to stay within a stable 3 percent range.
(Current account balance) It is likely to balance out.
The goods account surplus in 2007 is expected to be similar to that of 2006. However, the current account is estimated to balance out given the continuing trend of widening non-goods account deficit led by services.
(Overall assessment) The Korean economy in 2007 is expected to perform mostly in line with potential in terms of growth and employment, despite external and domestic uncertainties.
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2008년 10월 6일 16:30
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2008년 8월 6일 17:21