□	우리 경제는 2012년에 내수를 중심으로 전년과 유사한 성장세를 유지하고, 2013년에는 내수와 수출 확대를 바탕으로 성장세가 확대될 것으로 전망

• 2012년에 3.6%, 2013년에 4.1%의 성장률을 기록할 것으로 예상됨.
• 소비자물가는 2012년과 2013년에 2.6% 및 2.8%의 상승률을 기록하며 안정화될 것으로 전망
• 경상수지는 내수 증가와 원화가치 상승 등의 영향으로 흑자규모가 축소되어 2012년과 2013년에 각각 183억달러와 122억달러를 기록할 전망
  
  

□ The Korean economy is projected to maintain a similar pace of growth as the previous year mainly led by domestic demand in 2012 and to grow at a faster pace supported by increases in domestic demand and exports in 2013. Korea's GDP growth rate is expected to record 3.6% in 2012 and 4.1% in 2013. CPI growth is expected to record 2.6% in 2012 and 2.8% in 2013, signaling stability. The current account surplus is expected to decrease from $18.3 billion in 2012 to $12.2 billion in 2013, influenced by the increase in domestic demand and the strong Korean won.

Ⅰ. Current Economic Conditions

□	The Korean economy is showing signs of continuing slowdown since the second half of the previous year as external and internal demands weakened due to global economic uncertainties.

• The Korean economy registered a growth rate of 2.8% in the first quarter of this year, continuing the downward trend for four consecutive quarters since 4.2% growth rate in the first quarter of the previous year.
  
• Recent economic slowdown attributable to the deterioration of the terms of trade and weak income growth (real purchasing power) was brought on by slow rise in wage as external demands declined.

□	For aggregate demand, both consumption and investment seem stagnant largely due to deteriorating terms of trade as export growth slowed down significantly due to weakening global economic growth.

• Private consumption improved slightly during the first quarter of this year, although showing sluggish performance due to high inflation against weakening GNI due to deteriorating terms of trade.
• Equipment investment appears to improve this year after continuing slowdown in the previous year, although construction investment appears to remain weak.
• Exports showed a gradually decreasing pace of growth as the global economy worsened due to the fiscal crisis in Europe.
  

□	The labor market showed continuing improvement in employment conditions with a rise in the number of employed and slowing inflation, which signal stability.

• Meanwhile, the growth rate of nominal wage remained significantly below the nominal GDP growth rate, hence the low growth in earned income compared to employment growth continues.
• CPI fell sharply due to the recent implementation of the child care support policy, while showing a slower pace of growth due to economic slowdown since the second half of the previous year.

□	The financial market showed overall stability this year, after a temporary rise in volatility due to the worsening fiscal crisis situation in Europe in the second half of the previous year.

• Loans to households decreased in both banks and non-bank institutions since the second half of the previous year, whereas the delinquency rate slightly increased recently.
  

□	The global economy is expected to continue growth at a moderate pace due to improving economic conditions of a few advanced countries and emerging market economies, although downside risks are high such as the fiscal crisis in Europe and oil price hikes.

• Overall economic slowdown is expected to continue in the euro area due to fiscal tightening and debt adjustment, whereas a few advanced economies including the US are projected to improve at a moderate pace.
• Emerging market economies are projected to show a decrease in exports due to a sluggish overseas demand, but to grow at a gradual pace considering the comparatively steady conditions of domestic demand and policy response capacity.
• Accordingly, major economic forecasting institutions revised up the growth projection slightly, reflecting expectations of economic recovery for a few advanced countries.
  - According to the IMF, the global economic growth rate is forecasted to reach 3.5%, slightly up from the previous projection (3.3% released on January 2012).
  

□	The Korean economy is expected to see slowdown in exports due to weakening demand from overseas, but to continue a gradual upward momentum mainly in domestic demand influenced by improving domestic conditions.

• The contribution of net exports in economic growth is expected to decline as exports to Europe decline.
• Meanwhile, domestic demand is projected to grow at a slightly faster pace than the previous year due to stable inflation, wage increase and improved trade terms.
• However, instability factors such as the worsening aggravating fiscal crisis in Europe and or continually rising oil prices increase caused by demand side could bring downside risks on the Korean economy.
  

□	The downside risks due to the weak global economy will continue for a while, but changing the current macroeconomic policy stance will not be necessary.

• Korea's economic growth is on a gradual decline since the second half of the previous year, but it is expected to recover at a steady pace starting the second half of this year.
  - In the case where external conditions worsen rapidly mainly due to the fiscal crisis in Europe, it would be appropriate to focus on fiscal policy, which has a relatively large policy capacity, in order to achieve economic stability.
• It is necessary to develop fundamental solutions to problems relating to savings banks, while monitoring financial safety net in order to prevent recent woes of insolvent savings banks from turning into a financial turmoil.
   

Ⅱ. Domestic Economic Outlook for 2012~2013

1. Major Assumptions
 

□	Global Economy: The global economy in 2012 is projected to grow at a slightly slower pace due to the fiscal crisis in Europe, but to recover in 2013.

 

□	Oil Prices: Oil prices (import unit price) are projected to be around $115 per barrel in 2012, an increase of 10% from 2011 ($105 per barrel), but it is expected to show downward stabilization with approximately $110 per barrel in 2013.

□	Real Effective Exchange Rate (REER): The value of the Korean won is projected to rise moderately since the second half of 2012, as uncertainties over financial global markets such as the fiscal crisis in Europe diminish gradually.

 

2. Major Forecasts for 2012 and 2013
 

□	Korea's GDP growth rate is projected to record 3.6% in 2012, similar to the previous year, and then 4.1% in 2013 as both exports and domestic demand increase at a faster pace.

• Korea's GDP growth rate is forecasted to record 3.6% in 2012, similar to the previous year, supported by increasing domestic demand despite the slowdown in exports. In 2013, the GDP growth rate will further rise to 4.1% thanks to the larger increment in export growth and the improvement in domestic demand.
• Private consumption is expected to register a 2.7% growth in 2012, influenced by continuing upward trend in employment and stable conditions of trade terms brought on by the slower pace of rise in oil prices.
  - Private consumption is expected to register a relatively high 4.0% growth rate in 2013, as GNI improves influenced by stable oil prices and the appreciation of the won currency.
• Equipment investment is projected to register a growth rate of 8.1% in 2012 due to diminishing uncertainties over external and internal conditions and the base effect from poor performance in the previous year.
  - Equipment investment is projected to register a growth rate of 6.2% in 2013 influenced by the increase in external and internal demand and the reduced cost of capital goods imports due to the appreciation of the won.
• Construction investment is expected to register a 3.1% growth rate in 2012 and 4.4% in 2013 with a slight improvement in severe sluggishness supported by a moderate recovery in the construction sector.
• The goods export (in volume terms) is forecasted to register a growth rate of 7.1% in 2012 due to the weakening global economy, and then 10.7% in 2013 supported by the recovery of the global economy.
• The goods import (in volume terms) is expected to register a 5.5% growth in 2012 influenced by the reduced demand for imports due to the slowdown in export growth, and then 10.2% in 2013 due to the higher growth rates of domestic demand and exports.
  

□	The surplus of current account balance is expected to decrease gradually, reflecting the increased domestic demand and the appreciation of the won.

• The surplus of current account balance is expected to record $18.3 billion in 2012 and $12.2 billion in 2013, as goods account surplus decreases and service account deficit increases influenced by the higher growth rate of domestic demand and the appreciation of the won.
  

□	CPI is expected to decrease sharply recording a 2.6% growth rate in 2012 influenced by economic slowdown and childcare subsidy policy.

• CPI is expected to rise slightly to a 2.8% growth rate in 2013, as the economy grows at a faster pace and the policy effect of child care subsidy diminishes.
  

□	The unemployment rate is forecasted to record 3.4% in 2012 and 3.3% in 2013, as it decrease gradually influenced by a steady upward trend in employment.

• The number of employed is expected to continue the upward trend slightly above the annual average 300,000 persons in 2012 and 2013.
  

Economic Forecast for 2012~13

(year-on-year basis, %, USD 100 million)

	2011	2012					2013
	Yearly *1)	1/4 *2)	2/4	3/4	4/4	Yearly	Yearly
GDP (seasonally adjusted quarter-on-quarter) Total Consumption 　Private Consumption Total Fixed Investment 　Equip. Investment 　Construction Total Exports (Quantity)  Goods Exports(Quantity) Total Imports (Quantity)  Goods Imports(Quantity)	3.6 2.2 2.3 -1.1 3.7 -5.0 9.5 10.5 6.5 8.7	2.8 (0.9) 2.2 1.6 5.1 9.1 2.1 5.0 4.5 4.6 4.6	3.3 (1.0) 2.6 1.8 3.4 4.4 2.4 5.2 5.2 2.7 2.4	3.5 (1.2) 3.0 2.8 4.3 7.2 2.3 5.3 6.0 5.1 4.6	4.5 (1.3) 4.4 4.6 7.6 12.1 5.2 10.6 12.2 10.5 10.3	3.6 3.0 2.7 5.2 8.1 3.1 6.6 7.1 5.8 5.5	4.1 3.8 4.0 5.1 6.2 4.4 10.0 10.7 8.8 10.2
Current Account Goods Trade Balance 　Exports (Amount) 　　　　(%) 　Imports (Amount) 　　　　(%) Service Primary· Secondary Income	265 310 5,526 (19.7) 5,216 (23.8) -44	26 27 1,347 (5.5) 1,320 (8.3) -1	51 81 1,497 (4.9) 1,416 (4.9) -29	44 70 1,494 (5.7) 1,425) (6.2) -26	62 92 1,575 (11.9) 1,483 (13.6) -30	183 269 5,912 (7.0) 5.643 (8.2) -86	122 242 6,340 (7.2) 6,098 (8.1) -120
CPI Inflation (Core inflation)	4.0 (3.1)	3.0 (2.5)	2.5 (1.8)	2.4 (1.8)	2.6 (2.1)	2.6 (2.0)	2.8 (2.5)
Unemployment Rate (Seasonally Adjusted)	3.4	3.8 (3.5)	3.4 (3.4)	3.2 (3.3)	3.1 (3.3)	3.4	3.3

　Note: 1) p denotes preliminary estimates.
　　　  2) Advance estimate.

Ⅲ. Policy Recommendations

1. Fiscal Policy
 

□	It is necessary to continue the current policy efforts to achieve fiscal balance in the future while maintaining the basic direction of fiscal policy with its focus on fiscal consolidation.

• It is appropriate to administer fiscal management in a way to achieve fiscal balance through improving fiscal account gradually, keeping in mind that the future fiscal burden will be greater.
  - Unless the current economic downturn escalates causing a rapid fall in the real economy, there is no need to change the present fiscal policy stance which focuses on improving fiscal consolidation.
  - However, it would be necessary to actively maintain current fiscal policy to manage the economy within the scope of budget such as minimizing the amount of unused budget for this year, while at the same time maintaining fiscal policy focusing on fiscal consolidation.
  

□	It would be necessary to establish a framework for fiscal soundness by expanding tax resources through streamlining tax expenditure systems and also by implementing expenditure restructuring based on performance evaluation.

• Tax resources should be expanded through full-scale reevaluation on tax exemption and reduction, while non-tax revenue needs to be adjusted in a flexible manner reflecting market conditions.
• Fiscal expenditure should adopt strict restructuring procedures on projects with poor performance, while reinforcing preliminary verification process on fiscal burdens resulting from new legislation that accompanies fiscal expenditure.
  

2. Monetary Policy
 

□	For monetary policy, it is necessary to stabilize inflation expectations of economic subjects by enhancing confidence on monetary policy in the medium- to longer-term, while maintaining interest rates at the current level for a while

• Considering domestic economic conditions including inflation, it would be appropriate to maintain interest rates at the current level as a way to secure capacity to respond to risk factors.
  

3. Financial Policy
 

□	In order to resolve financial instability triggered by the problems of insolvency issues of savings banks, structural reforms in the savings bank sector may be needed.

• Fundamentally solving the problems of savings banks will require complete overhaul and a full-scale structural reform in the savings bank sector.
  - It is necessary to limit expansion and reorganize savings banks so that their founding role as a low-end financial institution, can be fulfilled.
  - It is necessary to remove causes of illegal activities by strengthening screening criteria for the eligibility of major shareholders and also reduce irregularities by imposing penalties on illegal actions exposed.
  - In addition, it is necessary to reform deposit insurance system with the consideration of the insolvency probability of savings banks.
  

□	Selective restructuring needs to be conducted on marginal businesses as the insolvency risks of SMEs are increasing continuously.

• Despite government credit guarantees and support funds to help SMEs to stay afloat since the financial crisis of 2008, the issues of SME credit crunch and insolvency risks continue to grow.
• Therefore, it is necessary to improve the "Creditor Banks Standing Council Operating Agreement" and restructure marginal businesses selectively in order to resolve uncertainties over credit risks of SMEs.
  

4. Labor Market Policy
 

□	Now is the most appropriate time to actively work to improve the quality of life and generate more jobs by enhancing the effectiveness of policies to improve long working hours based on concessions and compromises between labor and management.

• In order to promote reduction in working hours in the future, it would be appropriate to gradually pursue system improvement by reducing the broad scope of sectors excluded from the application of legal working hours and including work on holiday to overtime work.
• Adding to system improvement, concessions and compromises between labor and management could serve to accelerate the structural transformation from fewer workers working longer hours to more workers working appropriate hours.
  - It would be more effective for the working hour system to be driven by labor-management compromise and social consensus than by the government in order to reduce working hours a step by step manner.

제 1 부 경제전망 및 정책방향

Ⅰ. 현 경제상황에 대한 인식
Ⅱ. 2012~13년 국내경제 전망
　1. 대외 여건에 대한 주요 전제
　2. 2012~13년 국내경제 전망
　3. 전망의 위험요인
Ⅲ. 정책방향
　1. 재정정책
　2. 통화정책
　3. 금융정책
　4. 노동시장정책

제 2 부 경제현안 분석

Ⅰ. 재정기조지표를 이용한 재정정책 평가 및 시사점
Ⅱ. 정책금리 결정행태 분석 및 통화정책에 대한 시사점
Ⅲ. 노동공급을 중심으로 살펴본 최근 고용증가세 분석

제 3 부 국내외 경제동향

Ⅰ. 국내경제 동향
　1. 국내총생산
　2. 경 기
　3. 소 비
　4. 설비투자
　5. 건설투자
　6. 수출입 및 국제수지
　7. 노동시장
　8. 물 가
　9. 금융시장
　10. 재 정
Ⅱ. 세계경제 동향
　1. 개 괄
　2. 주요 국가별 경제상황
　3. 환율 및 금리
　4. 원자재와 반도체 가격