1. Overview of the Korean Economy September 2009 Joong Shik Lee Research Department The Bank of Korea

2. Contents 1.Past Development 2.Current Situation : Overcoming Global Financial Crisis 3. Economic Outlook

3. South Korea Area : 100,000 km 2 (108 th ) o/w 65% mountains 20% arable Population : 48.5 mil(26 th ) density : 493/km 2 (21 st ) Natural resources : coal, tungsten, etc

4. 1. Past Development 1960 → 2008 GDP : increase by about 460 times per capita GNI : increase by about 250 times Economic Size 24619,23111,2926,1471,64525479 Dollar Per capita GNI (current prices) 492934.0530.6263.562.78.21.9 Billion Dollar GNI (current prices) 464928.0533.3263.763.88.12.0 Billion Dollar GDP B/A 2008 (B) 2000199019801970 1960 (A)

5. US$ 970 Billion GDP (at current prices, 2007) US$ 13,841 Billion

6. Current price (thousand $) per capita GNI (2007) US$ 20,045 US$ 45,498

7. 20,045 per capita GNI (1960, 2007)

8. Export and Import 422.0172.365.017.5 Billion Dollar Exports 2008200019901980 0.03 1960 0.84 1970 435.3160.569.822.2 Billion Dollar Imports0.341.98 201.296.214.86.6 Billion Dollar Foreign Reserves 0.160.61 1960 → 2008 Export : increase 14,000 times, Import : increase 1,300 times, Foreign Reserves : Increase 1,300times

9. Export (0.1 billion $) Import (0.1 billion $) Exports and Imports, 2007 US$ 371 billion US$ 357 billion

10. 1960 → 2008 Agriculture, forestry and fishing : 37% → 3% Mining and manufacturing : 16% → 28% Services : 43% → 60% Industrial Structure 2.54.98.916.2% 농림어업 2008200019901980 36.8 1960 29.2 1970 28.329.828.126.4% 광공업 15.919.6 8.811.013.410.2% 전가수, 건설 4.16.5 60.354.449.547.3% 서비스업 43.244.7 Agriculture, forestry and fishing Mining and manufacturing Electricity, gas, Water supply, Construction Services

11. Ship building Ship building 1st (35.2%) Japan 29% DRAM 1st (48.5%) Auto mobiles Auto mobiles 5th (5.5%) USA 17.7% Iron & Steel Iron & Steel 5th (4.3%) China 31.7% Major Industries (Global Share)

12. 2. Current Situation 1)Global Financial Crisis and Rapid Downfall of World Economy 2)Recent Economic Activities 3)Macroeconomic Policy Responses

13. 1) Global Financial Crisis ▪ Continuation of global deleveraging Source : IMF Private Sector Credit Growth of Emerging Countries Private Sector Credit Growth of Emerging Countries Corporate Bond Credit Spreads of Emerging Countries Corporate Bond Credit Spreads of Emerging Countries

14. 1) Rapid Downfall of World Economy World GDP Growth Rate World Leading Countries Emerging market USAJapanEuro area 2008 IMF3.10.81.1-0.70.86.0 OECD2.40.81.1-0.70.5- 2009 IMF-1.4-3.8-2.6-5.8-4.81.5 OECD-2.2-4.1-2.8-6.8-4.8- 2010 IMF2.50.60.8-0.2-0.34.7 OECD2.30.70.90.70.0- (%)

15. 2) Recent Economic Activities : Demand Side (year-on-year, %) Key Economic Indicators (year-on-year basis, %) 2008 2009 Year1Q2Q3Q4Q 1Q2QMay.Jun. GDP Growth rate2.25.54.33.1-3.4 -4.2-2.5-- Consumer goods sales 1.04.42.91.4-4.2 -4.91.51.67.3 Equipment investment index -4.3-3.8-2.73.0-13.4 -17.7-13.7-16.2-5.6 Domestic construction completed 4.75.66.110.6-2.2 4.56.6-0.714.0

16. Production and Capacity Utilization Ratio (year-on-year basis, %) 200720082009 Year 1Q2Q3Q4Q1Q2QMayJun ￭ Industrial production (year-on-year,%) 7.13.011.19.35.6-12.1-16.4-6.6-9.5-1.5 (S.A., month-on-month,%) --1.80.3-2.2-12.5-3.012.11.65.8 ￭ Average capacity utilization ratio (%) 80.177.280.880.478.369.365.873.672.976.5 ￭ Inventory-shipments ratio (S.A., %) 1) --99.3108.3112.1129.2106.892.597.492.5 Note : 1) Based on the last month of the previous period for quarterly figures Source : Current Industrial Activities, Korea National Statistical Office 2) Recent Economic Activities : Production Side

17. Core Inflation & Consumer Prices (Compared with previous period, %) 200720082009 Year 1Q2Q3Q4Q1Q2Q JunJul ￭ Consumer prices 3.64.11.82.00.6-0.41.50.2-0.10.4 [year-on-year] [2.5][4.7][3.8][4.8][5.5][4.5][3.9][2.8][2.0][1.6] ￭ Core inflation 2.45.62.11.41.10.91.00.40.10.2 [year-on-year] [2.4][4.2][3.0][3.9][4.8][5.4][4.9][3.9][3.5][3.2] Source: Consumer Prices, Korea National Statistical Office 2) Recent Economic Activities : Prices

18. Exports by Item and Regional destination ( year-on-year basis, %) 200720082009 Year 1Q2Q3Q4Q1Q2QJunJul ￭ Total exports 1) 3,714.9 4,220.1994.41,144.91,150.0930.7 745.6 911.0326.3327.2 (14.1) (13.6)(17.4)(23.1)(27.0)(-9.9) (-25.0) (-20.4)(-12.4)(-20.1) ￭ Total imports 1) 3,568.5 4,352.71060.51147.91229.0915.3 712.9 732.8253.6275.9 (15.3) (22.0)(28.9)(30.5)(42.8)(-9.0) (-32.8) (-36.2)(-32.9)(-35.8) ￭ Current Account 1) 59.5 -64.1-52.1-1.3-85.875.2 85.8 131.754.3- Note : 1) in hundreds of millions of dollars Source : Korea Customs Service, Bank of Korea 2) Recent Economic Activities : External Transactions

19. 3) Macroeconomic Policy Responses ▪ Monetary Policy: Policy Rate Cuts Korean Policy Rate

20. 3) Macroeconomic Policy Responses ▪ Monetary Policy: Liquidity Provision Liquidity Provision by the BOK (trillions of Korean Won) Total amount  Open market operations including repo purchases18.5  Increased aggregate credit ceiling loans2.7  Payment of interest on reserves0.5 1)  Support for Bond Market Stabilization Fund2.1  Support for Bank Recapitalization Fund3.3 Total27.1 Note : 1) Increased bank lending capacity : ₩ 4.6 trillion

21. ▪ Fiscal Policy: Aggressive Budget Operation Supplementary Budget Front Loading of Fiscal Spending 3) Macroeconomic Policy Responses Total(A)Tax Reduction(B) Net Increase (A － B) 28.411.217.2 (trillions of Korean Won) 2006. 1H2007. 1H2008. 1H 2009.1H ￭ Budget Spending Rate 52.055.752.0 → 69.8 (%) ▪ Government Guarantee on Banks’ Foreign Currency Debts : $100 bil. newly issued foreign-currency denominated debts

22. 3. Economic Outlook  Uncertainties in the global financial market  Setback in the recovery of global economy and deterioration in trade conditions  Rising international oil prices  Weakening purchasing power of households and increasing precautionary savings  Weakening investment sentiment → Need for maintaining current supportive macro policy stance → Beware of the timing and nature of the exit strategies

23. Notes : 1) Figures in parentheses represent year-on-year rates of increase in the original series (%). 2) Figures of the 1st and the 2nd halves are the simple averages of the respective quarterly growth rates after seasonal adjustment. 3) Figures in <> represent the forecasts on Apr, 2009. 20082009 e) 2010 e) 1 st half2 nd halfYear1/42/41 st half2 nd halfYear GDP growth 0.8-2.4 2.2 0.12.31.20.3 -1.6 3.6 (4.9)(-0.3)(-4.2)(-2.5)(-3.4)(0.2) Private Consumption 0.4-2.3 0.9 0.52.81.6-0.2 -1.4 2.6 (3.1)(-1.2)(-4.4)(-1.6)(-3.0)(0.3) Facilities Investment 0.0-7.0 -2.0 -11.26.8-2.22.9 -15.1 13.6 (1.3)(-5.2)(-23.5)(-18.5)(-20.9)(-9.1) Construction Investment -1.4-1.5 -2.1 5.20.22.7-0.6 2.2 2.1 (-1.0)(-3.0)(1.6)(2.1)(1.9)(2.5) Goods exports 0.9-6.7 4.1 -3.414.45.50.3 -2.8 8.5 (11.0)(-2.2)(-14.1)(-4.6)(-9.2)(3.7) Goods imports 1.6-7.2 4.6 -6.27.80.86.0 -6.8 9.8 (10.9)(-1.3)(-17.4)(-14.1)(-15.7)(2.5)

24. Notes : 1) Figures in <> represent the forecasts on Apr, 2009. 2) Figures in ( ) represent rates of increase compared to the last month of the relevant previous period(%). 20082009 e) 2010 e) 1 st half 2 nd half Year1/42/4 1 st half 2 nd half e) Year e) Year ￭ Consumer price inflation 4.35.04.73.92.83.32.5 2.9 3.0 (3.9)(0.3)(4.1)(1.5)(0.2)(1.7)(1.2) (2.9)(3.2) ￭ Core inflation 3.45.14.24.93.94.52.6 3.5 2.5 (3.5)(2.0)(5.6)(1.0)(0.4)(1.4)(0.7) (2.1)(3.0) Price Outlook (Year-on-year, %)

25. Current Account Prospects 20082009 e) 2010 e) 1 st half2 nd half Year1/42/4 1 st half2 nd half Year Current account -53-11-648612421080290 70 Goods account 45156084181265165430 230 Exports(customs clearance basis) 2,1392,0814,2207469161,6611,9193,580 3,945 (20.4)(7.4)(13.6)(-25.0)(-20.0)(-22.3)(-7.8)(-15.2) (10.2) Imports(customs clearance basis) 2,2082,1444,3537127331,4451,8253,270 3,870 (29.7)(14.9)(22.0)(-32.9)(-36.1)(-34.6)(-14.9)(-24.9) (18.3) Services · Income· Current transfers account -99-25-124-5-15-20-50-70-160 Note : 1) Figures in ( ) represent year-on-year changes(%) 2) Figures in <> represent the forecasts on Apr, 2009. (100 mil. dollars)

26. Trend of the GDP Growth Rate

27. CPI Inflation and the Current Account

28. Overview of the Korean Economy Thank You ! Enjoy your trip in Korea!!