Economic trends
South Korea is the world 11th economic power.
South Korea has shown spectacular growth over the past thirty years and its per capita income went from USD 100 in 1963 to nearly USD 20,000 today. South Korea is amongst 20 of the world's largest economies in terms of size. However, the country's economic growth potential has dropped due to structural problems, an underdeveloped financial market, rising household debt, an aging population and especially the current financial crisis. The general lack of transparency in regulations is also of major concern to foreign investors.
After a strong reduction at the end of 2008, production tied in again with growth in the first quarter of 2009. Nevertheless, the unemployment level rose perceptibly (it went from 3.2% in 2008 to 3.8% in 2009), whereas inflation slowed down and the current account surplus clearly progressed. In parallel to the strengthening of global trade in the second half of 2009, production growth should continue to recover and reach the 4% level at the end of 2010 (source:OECD). To strengthen activity, the country should succeed in slowing the growth of public expenses in order to balance the budget, while maintaining tax reforms aimed at establishing a growth-friendly regime. While maintaining the structural reforms aimed at assisting growth in the medium term, authorities should also ensure that the negative impact of company reorganizations on the financial sector remains limited.
To deal with the crisis, the South Korean government announced a US dollars 13.2 billion refinancing plan for the banking sector. Additionally, the IMF is expected to provide a short term credit facility of US dollars 22 billion. These measures, together with the 2% Korean central bank reference rate drop, put the country's banks in a more comfortable situation. Very involved in the capital and financing of Korean companies, the banks, more than anywhere else, feel the consequences of the economy slowing down.
Main branches of industry
The primary sector in Korea is weak, with only a negligible contribution to the country's GDP. Rice is the main agricultural crop. However, barley, wheat, corn, soybeans, and sorghum are also extensively cultivated. Likewise, livestock farming is done on a large scale. South Korea's mineral resources are limited to gold and silver.
The country's main sectors of activity are textile, the steel industry, car manufacturing, shipbuilding and electronics. South Korea is the largest producer of semiconductors in the world. The manufacturing sector represents 35% of the GDP, while the tertiary sector accounts for more than 60%.
International trade
South Korea is the world's 11th trading nation. In 2007, its trade surpassed the USD 700 billion mark. The country's trade balance is highly surplus and should remain so in the coming years. Despite the effects of the financial crisis, which greatly reduced this surplus, the weakness of the won, the Korean currency, promotes exports.
In response to the crisis, the South Korean government focus on the free trade agreements. The country signed a free trade agreement with the United States in 2007 and with the European Union in 2009.
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