CONOMICULLETIN Vol.38 No.8 Republic of Korea

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ISSN 2287-7266

eb.kdi.re.kr

Vol.38 No.8

August 2016

Republic of Korea

C ONOMIC

U L L E T I N

Policy Issue

Tax Revision Bill

Economic News Briefing

S&P Raises Korea’s Sovereign Credit Rating to AA Government Pledges Support for Nine Strategic Technologies Korean FDI Up 21.6% in First Half of 2016 Korea Grows 0.7% in Q2

Statistical Appendices The Green Book:

Current Economic Trends

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02 50 43

53 The Green Book: Current Economic Trends

Overview 03

01. External economic situation 04

02. Private consumption 08

03. Facility investment 10

04. Construction investment 13

05. Exports and imports 15

06. Mining and manufacturing production 18

07. Service sector activity 20

08. Employment 22

09. Financial markets 26

9.1 Stock market 26

9.2 Exchange rate 27

9.3 Bond market 27

9.4 Money supply and money market 28

10. Balance of payments 30

11. Prices 32

11.1 Consumer prices 32

11.2 International oil and commodity prices 34

12. Real estate market 37

12.1 Housing market 37

12.2 Land market 39

13. Composite indices of business cycle indicators 41

02 Economic News Briefing

S&P raises Korea’s sovereign credit rating to AA

Supplementary budget positive for Korea’s credit rating, says Moody’s Ministry of Strategy and Finance considers issuing 50-year KTBs Government pledges support for nine strategic technologies Korean FDI up 21.6% in first half of 2016

‘Fintech Demo-day’ held in London Korea grows 0.7% in Q2 (advanced)

49 Policy Issue

Tax revision bill

43 Statistical Appendices 53

Green Book: The Current Economic

Trends

Overview

01. External economic situation 02. Private consumption 03. Facility investment 04. Construction investment 05. Exports and imports

06. Mining and manufacturing production 07. Service sector activity

08. Employment 09. Financial markets 10. Balance of payments 11. Prices

12. Real estate market

13. Composite indices of business cycle indicators

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Overview

The Korean economy has seen domestic demand pick up as government measures helped boost consumption, while production remains weak due to export slowdown.

The economy added more jobs in June than the previous month (up 261,000 → up 354,000, y-o-y) led by the service sector, due to a low base effect from a year ago when service industries were hit by the MERS outbreak. Job growth continued to decelerate in the manufacturing sector.

Consumer prices rose at a slower rate in July compared with the previous month (up 0.8% → up 0.7%, y-o-y), as the effect of public service fee increases diminished.

Mining and manufacturing production fell 0.2 percent month-on-month in June as the production of automobiles, steel and vessels declined due to a high base effect and sluggish exports.

Service output continued to grow in June, up 1.0 percent month-on-month, backed by an increase in automobile sales and stock transactions.

Retail sales rose 1.0 percent in June led by durable goods sales, as automobile sales jumped before the sunset of the individual consumption tax cut on cars, scheduled at the end of June.

Facility investment continued to increase in June, up 4.5 percent month-on-month, led by transportation equipment. Construction completed rose 3.1 percent from the previous month, helped by the public sector which has been boosted by frontloaded budget spending.

In June, the cyclical indicator of the coincident composite index rose 0.2 points, backed by strong production and retail sales indices, and the cyclical indicator of the leading composite index fell 0.1 points, due to a decrease in construction orders received.

Exports declined at a faster pace in July, down 10.2 percent year-on-year, partly due to fewer days worked and suspended delivery of vessels.

Stock prices rose and Korea Treasury bond yields declined in July in line with increased expectations for expansionary monetary policies in major economies following the Brexit referendum. The Korean won strengthened against both the US dollar and the Japanese yen as global risk aversion eased.

Housing prices increased at the same rate as the previous month in July (up 0.04%), while Jeonse (lump- sum deposits with no monthly payments) prices rose at a slower pace (up 0.11% → up 0.08%).

Recovery in domestic demand could be limited due to government measures to stimulate the economy becoming less effective, for example, with the expiration of the individual consumption tax cut on cars, while external and internal risks to the economy from Brexit and industrial restructuring remain.

The government will closely monitor domestic and global economic developments as well as examine

the possible impact of internal and external uncertainties on domestic financial markets.

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The government will actively respond to any risks to the economy and employment by implementing expansionary fiscal policies, including the supplementary budget, as well as other policies aimed at increasing consumption and investment.

1. External economic situation

Major economies including the US and eurozone have yet to build up recovery momentum and emerging economies including China continue to struggle, while risks to the global economy, such as a Fed rate hike and Brexit, remain.

The US economy grew 1.2 percent (annualized, q-o-q) in the second quarter of 2016, falling short of the forecast for 2.4 percent growth, due to declining investment and falling inventories, even though consumption and employment improved.

Industrial production rose 0.6 percent month-on-month in June due to an increase in the production of durable goods (up 3.4%), including automotive products (up 6.3%), while the ISM manufacturing index for July fell.

ISM Manufacturing Index (base=50)

48.2 (Jan 2016) → 49.5 (Feb) → 51.8 (Mar) → 50.8 (Apr) → 51.3 (May) → 53.2 (Jun) → 52.6 (Jul)

Retail sales rose 0.6 percent month-on-month in June, increasing for the third consecutive month, however, consumer confidence fell in July due to concerns over the impact of Brexit.

University of Michigan Consumer Sentiment Index (1966=100)

Conference Board Consumer Confidence Index (1985=100)

Existing home sales grew 1.1 percent month-on-month to an annualized pace of 5,570,000 in June, reaching the highest in nine years for the second consecutive month, while home prices and new home sales also increased.

US

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Case-Shiller Home Price Index (y-o-y, %)

5.7 (Nov 2015) → 5.6 (Dec) → 5.7 (Jan 2016) → 5.4 (Feb) → 5.5 (Mar) → 5.4 (Apr) → 5.2 (May)

New home sales (m-o-m, %)

6.3 (Nov 2015) → 5.9 (Dec) → -2.2 (Jan 2016) → -0.2 (Feb) → 2.3 (Mar) → 6.5 (Apr) → 0.0 (May) → 3.5 (Jun)

Nonfarm payrolls added more than 250,000 jobs for the second straight month in July (255,000 jobs), backed by the strong service sector, while the unemployment rate was 4.9 percent, staying at a similar level to the previous month.

Nonfarm payroll increase (m-o-m, thousands)

168 (Jan 2016) → 233 (Feb) → 186 (Mar) → 144 (Apr) → 24 (May) → 292 (Jun) → 255 (Jul)

US GDP growth and industrial production

Sources: US Department of Commerce, Federal Reserve Board

-10 -8 -6 -4 -2 0 2 4 6 8 10

2006.Q1 2007.Q1 2008.Q1 2009.Q1 2010.Q1 2011.Q1 2012.Q1 2013.Q1 2014.Q1 2015.Q1 2016.Q1

(%)

GDP (q-o-q, annualized rate) Industrial production (q-o-q)

(Percentage change from previous period)

2013 2014 2015 2016

Annual Annual Q4 Annual Q1 Q2 Q3 Q4 Q1 Q2 Apr May Jun

Real GDP¹ 1.7 2.4 2.3 2.6 2.0 2.6 2.0 0.9 0.8 1.2 - - -

- Personal consumption expenditure 1.5 2.9 4.6 3.2 2.4 2.9 2.7 2.3 1.6 4.2 - - -

- Nonresidential fixed investment 3.5 6.0 -1.1 2.1 1.3 1.6 3.9 -3.3 -3.4 -2.2 - - -

- Residential fixed investment 11.9 3.5 11.4 11.7 13.3 14.9 12.6 11.5 7.8 -6.1 - - -

Industrial production 1.9 2.9 0.9 0.3 -0.5 -0.7 0.4 -0.8 -0.5 -0.3 0.5 -0.3 0.6

Retail sales 3.8 4.1 0.6 2.3 -0.7 1.5 0.9 0.3 -0.1 1.4 1.2 0.2 0.6

Existing home sales 9.1 -3.1 1.8 6.3 -0.7 4.6 2.3 -3.8 1.9 3.8 1.3 1.5 1.1

Unemployment rate² 7.4 6.2 5.7 5.3 5.5 5.4 5.2 5.0 4.9 4.9 5.0 4.7 4.9

Consumer prices (y-o-y) 1.5 1.6 1.2 0.1 -0.1 0.0 0.1 0.4 1.1 1.1 1.1 1.0 1.0

1. Annualized rate (%) 2. Seasonally adjusted (%) Sources: US Department of Commerce, Bloomberg

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(Percentage change from same period in previous year)

2013 2014 2015 2016

Annual Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 Apr May Jun

Real GDP 7.7 7.3 6.9 7.0 7.0 6.9 6.8 6.7 6.7 - - -

Industrial production 9.7 8.3 6.1 6.4 6.3 5.9 5.9 5.8 6.1 6.0 6.0 6.2

Fixed asset investment

(accumulated, nominal) 19.6 15.7 10.0 13.5 11.4 10.3 10.0 10.7 9.0 10.5 9.6 9.0

Retail sales (nominal) 13.1 12.0 10.7 10.6 10.2 10.7 11.1 10.3 10.2 10.1 10.0 10.6

Exports 8.6 5.5 -2.5 4.7 -2.1 -5.9 -5.0 -9.6 -3.6 -1.8 -4.1 -4.8

Consumer prices¹ 2.6 2.0 1.4 1.2 1.4 1.7 1.5 2.1 2.1 2.3 2.0 1.9

Producer prices¹ -1.9 -1.9 -5.2 -4.6 -4.8 -5.7 -5.9 -4.8 -2.9 -3.4 -2.8 -2.6

1. Quarterly Change: average of monthly change Source: China National Bureau of Statistics

China

China’s economy grew 6.7 percent year-on-year in the second quarter, beating market expectations for 6.6 percent growth, as strong service sector growth and public sector investment offset the weak manufacturing sector.

GDP growth by sector (y-o-y, %)

3.1 (primary sector), 6.3 (secondary sector), 7.5 (tertiary sector)

Consumption has contributed more to GDP growth as China’s economy undergoes structural changes.

Contribution to H1 GDP growth (%p, 2015 → 2016)

4.2 → 4.9 (consumption), 2.9 → 2.5 (investment), -0.7 → -0.7 (net exports)

0 10 20 30 40 50 60

4 6 8 10 12 14 16

2006.Q1 2007.Q1 2008.Q1 2009.Q1 2010.Q1 2011.Q1 2012.Q1 2013.Q1 2014.Q1 2015.Q1 2016.Q1

(%) (%)

China’s GDP growth and fixed asset investment

Source: China National Bureau of Statistics

Fixed asset investment (accumulated, y-o-y, right) GDP (y-o-y, left)

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Sources: Japan's Cabinet Office, Ministry of Economy, Trade and Industry, Ministry of Finance, Statistics Bureau of Japan

2013 2014 2015 2016

Annual Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 Apr May Jun

Real GDP 1.4 0.0 0.6 1.3 -0.4 0.4 -0.4 0.5 - - - -

Industrial production -0.6 2.1 -1.2 1.1 -1.3 -1.0 0.0 -1.0 0.1 0.5 -2.6 1.9

Retail sales 1.2 1.7 -0.4 -1.7 0.2 1.0 -0.2 -2.3 0.1 -0.1 -0.1 0.2

Exports (y-o-y) 9.5 4.8 3.4 9.0 6.7 3.7 -4.6 -7.9 -9.5 -10.1 -11.3 -7.4

Consumer prices (y-o-y) 0.4 2.7 0.8 2.3 0.5 0.1 0.3 0.1 -0.4 -0.3 -0.4 -0.4

Japan

Industrial production improved in June due to a low base effect, while weak exports and consumption as well as deflationary concerns stemming from falling prices remain as risks. The Japanese government unveiled on August 2 a 28.1 trillion yen stimulus package aimed at expanding infrastructure investment and dealing with the fallout from Brexit, while the Bank of Japan decided on July 29 to expand its quantitative easing program by increasing annual ETF purchases to 6.0 trillion yen from 3.3 trillion yen.

Japan’s GDP growth and industrial production

Sources: Japan's Cabinet Office, Ministry of Economy, Trade and Industry

-25 -20 -15 -10 -5 0 5 10 15

-6 -4 -2 0 2 4

2006.Q1 2007.Q1 2008.Q1 2009.Q1 2010.Q1 2011.Q1 2012.Q1 2013.Q1 2014.Q1 2015.Q1 2016.Q1

(%) (%)

Industrial production (q-o-q, right) GDP (q-o-q, left)

Eurozone

The eurozone economy slowed in the second quarter, growing 0.3 percent compared with the previous quarter, due to deteriorating global conditions, while the impact of Brexit could dampen growth further in the second half of the year.

Manufacturing PMI (base=50)

53.2 (Dec 2015) → 52.3 (Jan 2016) → 51.2 (Feb) → 51.6 (Mar) → 51.7 (Apr) → 51.5 (May) → 52.8 (Jun) → 52.0 (Jul)

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-10 -8 -6 -4 -2 0 2 4 6 8 10

-3 -2 -1 0 1 2 3

2006.Q1 2007.Q1 2008.Q1 2009.Q1 2010.Q1 2011.Q1 2012.Q1 2013.Q1 2014.Q1 2015.Q1 2016.Q1

(%) (%)

Eurozone’s GDP growth and industrial production

Source: Eurostat

Industrial production (q-o-q, right) GDP (q-o-q, left)

Private consumption (preliminary GDP) in the second quarter of 2016 rose 0.9 percent compared to the previous quarter and rose 3.2 percent compared to a year ago.

2. Private consumption

1. Preliminary 2. National accounts Source: Bank of Korea

2013 2014 2015 2016

Annual Annual Q1 Q2 Q3 Q4 Annual¹ Q1¹ Q2¹ Q3¹ Q4¹ Q1¹ Q2¹

Private consumption² 1.9 1.7 0.4 -0.3 0.7 0.3 2.2 0.8 -0.1 1.1 1.4 -0.2 0.9

(y-o-y) - - 2.8 1.7 1.4 1.1 - 1.5 1.7 2.2 3.3 2.2 3.2

2013 2014 2015 2016

Annual Annual Q4 Annual Q1 Q2 Q3 Q4 Q1 Q2 Apr May Jun

Real GDP -0.3 0.9 0.4 1.7 0.6 0.4 0.3 0.4 0.6 0.3 - - -

Industrial production -0.7 0.9 0.6 1.5 0.7 0.1 0.4 0.1 0.8 - 1.1 - -

Retail sales -0.6 1.4 1.0 2.7 0.9 0.7 0.6 0.2 0.6 0.3 0.2 0.4 0.0

Exports (y-o-y) 1.0 2.2 4.4 5.4 5.5 8.2 4.4 3.6 -1.1 - -0.9 1.9 -

Consumer prices (y-o-y) 1.4 0.4 0.3 0.0 -0.3 0.2 0.1 0.2 0.0 -0.1 -0.2 -0.1 0.1

Sources: Eurostat, Bloomberg

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Private consumption

Source: Bank of Korea (national accounts)

-6 -4 -2 0 2 4 6 8 10 12

2006.Q1 2007.Q1 2008.Q1 2009.Q1 2010.Q1 2011.Q1 2012.Q1 2013.Q1 2014.Q1 2015.Q1 2016.Q1

(%)

Private consumption (q-o-q) Private consumption (y-o-y)

1. Preliminary 2. Durable goods: Automobiles, electronic appliances, furniture, telecommunications devices, etc.

3. Semi-durable goods: Clothing, footwear, etc. 4. Nondurable goods: Food, medicine, cosmetics, fuel, tobacco, etc.

Source: Statistics Korea

2013 2014 2015 2016

Annual Annual Q3 Q4 Annual Q1 Q2 Q3 Q4 Q2¹ May¹ Jun¹

Retail sales - - 1.4 0.3 - 1.0 0.7 1.3 3.1 2.7 0.8 1.0

(y-o-y) 0.7 2.0 2.0 2.4 3.9 2.2 3.4 3.6 6.1 6.0 5.3 8.9

- Durable goods² 0.3 5.1 3.2 0.4 10.2 4.3 0.8 2.0 8.2 7.4 0.9 3.0

· Automobiles 2.1 16.4 5.1 0.3 21.3 7.0 5.4 3.5 11.2 15.3 6.0 10.1

- Semi-durable goods³ 2.1 -0.8 3.9 -2.3 -1.2 -2.0 -1.0 1.8 2.8 2.2 1.3 -1.5

- Nondurable goods⁴ 0.4 1.6 -0.8 1.3 2.5 0.6 1.2 0.7 0.3 0.4 0.7 0.8

Retail sales in June rose 1.0 percent month-on-month, as sales of durable goods (up 3.0%), such as automobiles, and sales of nondurable goods (up 0.8%), such as food, increased, while sales of semi- durable goods fell (down 1.5%). Year-on-year, the index rose 8.9 percent.

Sources: Credit Finance Association of Korea, Korea National Oil Corporation, Korea Automobile Manufacturers Association, data provided by retail industries

2015 2016

Dec Jan Feb Mar Apr May Jun Jul

Credit card use 8.5 15.8 14.2 13.9 7.2 22.7 12.9 9.1

Department store sales -3.8 9.6 -0.1 4.8 8.0 1.5 13.5 10.5

Large discount store sales -2.1 13.4 -5.4 -1.4 0.2 -5.5 2.9 5.8

Domestic sales of gasoline 4.3 8.5 -1.1 -0.7 1.6 7.2 4.6 2.3

Domestic sales of cars 17.7 -4.5 9.0 18.9 5.8 20.8 24.1 -10.5

(Percentage change from same preriod in previous year)

Retail sales in July are forecast to slow, despite sales at department stores and large discount stores

continuing to increase, due to declining domestic sales of cars.

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3. Facility investment

Facility investment (advanced estimates of GDP) rose 2.9 percent quarter-on-quarter but fell 2.6 percent year-on-year in the second quarter of 2016.

Retail sales by type

Source: Statistics Korea (industrial activity trends)

-30 -20 -10 0 10 20 30 40 50

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(y-o-y, %)

Nondurable goods

Durable goods Semi-durable goods

-10 -5 0 5 10 15 20

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(%)

Retail sales

Retail sales (m-o-m) Retail sales (y-o-y)

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-30 -20 -10 0 10 20 30 40

2006.Q1 2007.Q1 2008.Q1 2009.Q1 2010.Q1 2011.Q1 2012.Q1 2013.Q1 2014.Q1 2015.Q1 2016.Q1

(%)

Facility investment

Facility investment (q-o-q) Facility investment (y-o-y)

2014 2015 2016

Annual Q4 Annual¹ Q1¹ Q2¹ Q3¹ Q4¹ Q1¹ Q2¹

Facility investment² 6.0 3.5 5.3 0.5 0.8 1.8 0.5 -7.4 2.9

(y-o-y) - 4.4 - 5.8 5.1 6.7 3.9 -4.5 -2.6

- Machinery 5.0 5.2 2.1 0.1 -2.9 0.8 -3.0 -6.4 -

- Transportation equipment 8.3 -0.4 12.5 1.5 9.3 3.7 7.4 -9.4 -

-30 -20 -10 0 10 20 30 40 50

2006.Q1 2007.Q1 2008.Q1 2009.Q1 2010.Q1 2011.Q1 2012.Q1 2013.Q1 2014.Q1 2015.Q1 2016.Q1

(y-o-y, %)

Facility investment by type

Transportation equipment Machinery

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-40 -20 0 20 40 60

2 3 4 5 6 7 8 9 10

2006.Q1 2007.Q1 2008.Q1 2009.Q1 2010.Q1 2011.Q1 2012.Q1 2013.Q1 2014.Q1 2015.Q1 2016.Q1

(trillion won) (y-o-y, %)

Leading indicators of facility investment

Sources: Statistics Korea (machinery orders), Korea International Trade Association (machinery imports)

Machinery orders (left) Machinery imports (right)

2014 2015 2016

Annual Annual Q1 Q2 Q3 Q4 Q1 Q2¹ May¹ Jun¹

Domestic machinery orders 14.8 -3.6 -3.0 14.9 -27.1 6.9 0.9 -3.1 1.9 24.3

(q-o-q, m-o-m) - - -0.1 8.6 -10.0 9.2 -6.3 4.4 7.4 18.7

- Public 94.2 -61.7 -66.9 61.7 -85.3 -19.8 56.9 15.1 -14.2 23.6

- Private 4.8 10.0 11.4 12.5 4.7 10.8 -2.9 -4.5 3.6 24.3

Machinery imports 5.8 0.3 8.5 -1.1 2.3 -6.4 -13.0 -6.7 1.7 2.0

Average manufacturing operation ratio 76.1 74.3 74.3 74.3 74.9 73.6 73.2 72.1 73.0 72.1 Facility investment adjustment pressure² -1.4 -1.8 -2.8 -2.8 -1.2 -0.6 -0.7 0.7 4.4 0.8 1. Preliminary 2. Production growth rate minus production capacity growth rate in the manufacturing sector (%p)

Sources: Statistics Korea, Korea International Trade Association

The facility investment index in June rose 4.5 percent month-on-month as both machinery and transportation equipment investment rose. The index increased 2.0 percent year-on-year.

2014 2015 2016

Facility investment index 5.2 6.3 -0.2 -2.2 5.2 -1.2 -8.7 6.2 0.1 4.5

(y-o-y) - - 9.2 4.5 10.2 1.6 -7.1 0.7 3.0 2.0

- Machinery 3.9 2.9 -0.1 -6.0 0.7 -2.6 -5.3 -0.5 -4.8 2.2

- Transportation equipment 8.8 14.9 -1.0 8.8 16.5 1.0 -14.3 20.5 8.1 10.4

1. Preliminary Source: Statistics Korea

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Facility investment outlooks are mixed as domestic machinery orders increased further, while the average manufacturing operation ratio remains low and automobile sales fell.

Domestic automobile sales growth (y-o-y, %)

-4.5 (Jan 2016) → 9.0 (Feb) → 18.9 (Mar) → 5.8 (Apr) → 20.8 (May) → 24.1 (Jun) → -10.5 (Jul)

-10 -5 0 5 10 15 20

2006.Q1 2007.Q1 2008.Q1 2009.Q1 2010.Q1 2011.Q1 2012.Q1 2013.Q1 2014.Q1 2015.Q1 2016.Q1

(%)

Construction investment

Construction investment (q-o-q) Construction investment (y-o-y)

2014 2015 2016

Annual Q4 Annual¹ Q1¹ Q2¹ Q3¹ Q4¹ Q1¹ Q2¹

Construction investment² 1.1 1.4 3.9 5.5 1.8 3.3 -2.4 6.8 2.9

(y-o-y) - -1.5 - 0.9 1.0 5.6 7.5 9.6 10.6

- Building construction 6.3 -4.9 6.3 2.5 4.9 5.6 0.3 3.6 -

- Civil engineering works -7.3 -4.7 -7.3 11.4 -3.8 -1.4 -8.0 14.0 -

4. Construction investment

Construction investment (advanced estimates of GDP) in the second quarter of 2016 rose 2.9 percent quarter-on-quarter and 10.6 percent year-on-year.

The value of construction completed (constant) in June rose 3.1 percent month-on-month as both civil

engineering works and building construction increased. The index rose 18.5 percent year-on-year.

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2014 2015 2016

Construction completed (constant) -0.7 2.3 4.1 -2.1 6.4 0.0 9.4 1.6 4.2 3.1

(y-o-y) - - -2.0 -3.9 5.9 8.0 14.8 18.3 20.5 18.5

- Building construction 7.8 6.0 4.4 -0.7 9.5 2.6 9.0 2.1 3.6 3.6

- Civil engineering works -12.3 -3.8 3.7 -4.4 0.9 -5.0 10.2 0.5 5.4 2.0

-30 -20 -10 0 10 20 30 40 50

2006.Q1 2007.Q1 2008.Q1 2009.Q1 2010.Q1 2011.Q1 2012.Q1 2013.Q1 2014.Q1 2015.Q1 2016.Q1

(y-o-y, %)

Construction investment by type

Building construction Residential buildings Civil engineering works

Construction investment is expected to increase given an increase in apartment presales, while a fall in new construction orders may have a negative impact.

Apartment presales (thousands, Real Estate 114)

58 (Dec 2015) → 8 (Jan 2016) → 9 (Feb) → 39 (Mar) → 34 (Apr) → 53 (May) → 41 (Jun) → 65 (Jul) Domestic shipments of cement (million tons)

4.61 (Dec 2015) → 3.01 (Jan 2016) → 2.89 (Feb) → 5.50 (Mar) → 5.00 (Apr) → 5.10 (May) → 4.85 (Jun)

1. Preliminary 2. Floor area

Sources: Statistics Korea, Ministry of Land, Infrastructure and Transport

2014 2015 2016

Construction orders (current value) 16.3 48.2 57.4 49.1 50.4 40.1 13.8 -8.5 -22.7 -13.9

(q-o-q, m-o-m) - - 47.4 11.6 21.3 -26.5 17.7 -11.7 -21.3 -11.6

- Building construction 24.5 50.1 89.5 49.3 42.5 37.8 13.1 -0.5 -28.3 6.7

- Civil engineering works -4.4 42.9 1.7 48.3 83.6 45.9 16.0 -32.6 12.5 -51.5

Building permits² 11.2 34.3 11.0 25.1 57.0 40.4 19.7 5.3 9.9 7.6

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-100 -50 0 50 100 150 200 250 300

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(y-o-y, %)

Leading indicators of construction investment

Sources: Statistics Korea (construction orders), Ministry of Land, Infrastructure and Transport (building permit area)

Construction orders Building permit area

5. Exports and imports

Exports (preliminary) declined 10.2 percent year-on-year to US $41.05 billion in July.

Exports fell at a faster pace in July compared with the previous month partly due to fewer days worked (down 1.5 days, y-o-y). By region, shipments to the US, Latin America and Middle East declined at a faster pace, and by item, shipments of vessels, automobiles and petrochemicals fell rapidly.

Export growth by region in July (y-o-y, %)

-2.1 (Japan), -3.5 (ASEAN countries), -4.3 (EU), -9.3 (China), -14.3 (US), -16.3 (Latin America), -19.3 (Middle East) Export growth by item in July (y-o-y, %)

-2.6 (semiconductors), -4.0 (mobile phones), -9.4 (oil products), -12.3 (petrochemicals), -14.6 (automobiles), -42.5 (vessels)

By volume, exports fell at a slower rate of 1.6 percent in July compared to the 2.9 percent of the previous month.

Average daily exports, an indicator adjusted to days worked, decreased month-on-month to US $1.75 billion.

Average daily exports (US $ billion)

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(US $ billion)

2014 2015 2016

Annual Annual Q1 Q2 Q3 Q4 Jul Q1 Q2 Jun Jul¹

Imports 525.51 436.50 111.77 110.50 107.96 106.27 38.65 93.64 98.86 33.80 33.25

(y-o-y, %) 1.9 -16.9 -15.6 -15.6 -18.7 -17.8 -15.7 -16.2 -10.5 -7.7 -14.0

Average daily

imports 1.94 1.60 1.68 1.62 1.58 1.52 1.55 1.41 1.47 1.47 1.41

1. Preliminary

Source: Korea Customs Service

Imports (preliminary) in July fell 14.0 percent year-on-year to US $33.25 billion.

Imports fell at a faster pace compared with the previous month (down 7.7% → down 14.0%) as imports of commodities and capital goods decreased at a faster rate, and consumer goods imports also turned negative.

Import growth by category (y-o-y, %, Jun → Jul)

-14.1 → -18.4 (commodities), -3.9 → -9.6 (capital goods), 4.8 → -8.6 (consumer goods)

Exports by item

Sources: Korea Customs Service, Ministry of Trade, Industry and Energy (export and import trends)

-80 -60 -40 -20 0 20 40 60 80 100 120 140 160

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(y-o-y, %)

Export growth rate Semiconductors Automobiles Steel

1. Preliminary

(US $ billion)

2014 2015 2016

Exports 572.66 526.76 133.40 135.10 128.24 130.02 45.70 115.60 126.20 45.29 41.05

(y-o-y, %) 2.3 -8.0 -3.0 -7.3 -9.5 -12.0 -5.2 -13.3 -6.6 -2.7 -10.2

Average daily

exports 2.11 1.93 2.01 1.99 1.87 1.86 1.83 1.74 1.88 1.97 1.75

(19)

Imports by category

-80 -60 -40 -20 0 20 40 60 80 100

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(y-o-y, %)

Import growth rate Commodities Capital goods

The trade balance (preliminary) posted a surplus of US $7.79 billion in July, staying in the black for the 54

^th

consecutive month. Surpluses decreased compared with the previous month.

1. Preliminary

(US $ billion)

2014 2015 2016

Trade balance 47.15 90.26 21.63 24.61 20.28 23.74 7.05 21.97 27.33 11.50 7.79

Exports and imports

-10 0 10 20 30 40 50 60

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(US$ billion)

Trade balance Exports Imports

(20)

2015 2016

Annual Q2 Jun Q1 Q2¹ Apr May¹ Jun¹

Mining and manufacturing²

(q-o-q, m-o-m) - -0.5 1.9 -0.6 1.0 -1.0 2.7 -0.2

(y-o-y) -0.6 -1.3 1.6 -0.2 1.0 -2.5 4.7 0.8

Manufacturing

Production (q-o-q, m-o-m) - -0.5 1.9 -0.7 1.1 -1.0 2.9 -0.2

(y-o-y) -0.6 -1.3 1.6 -0.4 1.1 -2.5 4.8 1.1

Shipment -0.2 -0.4 1.0 -1.8 1.8 -1.5 1.3 0.2

- Domestic consumption 0.4 0.5 0.7 -0.9 0.8 -2.4 0.8 -0.4

- Exports -1.0 -1.5 1.7 -3.1 3.2 0.0 2.0 0.8

Inventory³ 2.9 2.3 2.4 3.9 -2.1 -2.9 0.2 -0.1

Average operation ratio (%) 74.3 74.3 75.0 73.2 72.1 71.3 73.0 72.1

Production capacity (y-o-y) 1.2 1.5 1.5 0.4 0.4 0.5 0.4 0.3

1. Preliminary 2. Including mining, manufacturing and electricity & gas industry 3. End-period Source: Statistics Korea

Compared to the previous month, production of semiconductors (up 11.1%), communications equipment (up 4.7%) and furniture (up 6.2%) rose, while automobiles (down 2.5%), primary metals (down 3.0%) and other transportation equipment (down 6.1%) fell.

Compared to a year ago, production of semiconductors (up 45.5%), chemical products (up 4.6%) and pharmaceutical products (up 10.6%) rose, while electronic parts (down 10.2%), mechanical equipment (down 8.6%) and automobiles (down 4.4%) declined.

6. Mining and manufacturing production

Mining and manufacturing production fell 0.2 percent month-on-month in June, as weak automobiles and primary metals offset increases in semiconductors and communications equipment. Compared to the same period of the previous year, the index increased 0.8 percent.

-30 -20 -10 0 10 20 30 40 50

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(%)

Industrial production

Industrial production (m-o-m) Industrial production (y-o-y)

(21)

-12 -10 -8 -6 -4 -2 0 2 4 6 8 10

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(m-o-m, %)

Shipment and inventory

Shipment growth Inventory growth

The manufacturing inventory-shipment ratio fell 0.3 percentage points month-on-month to 122.2 percent as inventories fell 0.1 percent and shipments increased 0.2 percent.

Inventories of semiconductors (up 7.7%), refined petroleum (up 7.0%) and food (up 4.0%) rose, while electronic parts (down 13.1%), mechanical equipment (down 3.9%) and automobiles (down 2.8%) declined.

Shipments of semiconductors (up 10.5%), chemical products (up 1.1%) and mechanical equipment (up 1.3%) rose, while refined petroleum (down 5.0%), primary metals (down 2.5%) and other transportation equipment (down 6.4%) fell.

The average operation ratio of the manufacturing sector fell 0.9 percentage points month-on-month to 72.1 percent.

50 60 70 80 90 100

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(%)

Average manufacturing operation ratio

(22)

7. Service sector activity

Weight 2013 2014 2015 2016

Annual Annual Q4 Annual Q1 Q2 Q3 Q4 Q2¹ May¹ Jun¹

Service activity index 100.0 1.5 2.3 0.8 2.8 0.5 0.5 1.2 1.2 1.5 0.2 1.0

- Wholesale & retail 21.6 0.1 0.4 -0.4 1.7 0.7 0.3 0.9 2.2 1.9 -0.9 0.6

- Transportation services 8.5 1.0 1.7 1.8 1.4 -0.2 -2.6 1.9 1.9 -0.1 1.3 0.9

- Hotels & restaurants 7.2 0.5 1.5 -1.7 -2.0 -0.6 -3.4 2.1 0.8 -0.7 -0.7 0.1

- Publishing & communications services 8.4 2.2 2.0 -0.4 -0.6 -1.9 -0.5 3.0 1.1 1.8 -2.8 1.8 - Financial & insurance services 14.7 0.5 5.2 3.3 9.0 1.6 3.8 1.2 -0.4 1.5 0.8 1.3

- Real estate & renting 5.3 2.5 6.2 4.3 8.1 -0.8 6.4 0.9 -0.5 2.4 3.4 1.5

- Professional, scientific & technical services 5.6 3.3 2.3 2.9 -0.4 -2.9 -0.1 1.6 0.3 1.6 1.8 -0.2

- Business services 3.3 2.1 2.5 0.8 3.9 2.3 0.4 -1.0 3.4 -0.6 0.0 1.7

- Education services 10.9 0.8 1.3 -0.4 0.9 1.0 -0.6 0.0 1.0 0.1 -0.1 0.2

- Healthcare & social welfare services 7.5 5.2 6.3 2.2 6.2 1.9 0.0 1.4 3.1 3.9 2.7 1.6 - Entertainment, cultural & sports services 2.9 -0.7 -1.0 -2.3 1.1 1.5 -2.5 1.0 3.2 5.6 -1.9 6.8 - Membership organizations & personal services 3.6 6.1 -0.5 -1.9 -0.5 0.7 1.6 -0.2 -2.7 1.0 0.7 -0.3

- Sewerage & waste management 0.6 -0.4 1.0 3.6 7.2 0.6 3.6 4.6 -4.6 4.4 -0.1 3.5

Service output in June increased 1.0 percent month-on-month and 5.4 percent year-on-year.

Mining and manufacturing for July may decrease due to increased external uncertainties, in particular those following the Brexit referendum, as well as strikes in the auto industry.

-10 -5 0 5 10 15

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(%)

Service sector activity

Service sector activity (m-o-m) Service sector activity (y-o-y)

(23)

-4 0 4 8 12 16 (y-o-y, %)

Wholesale &

retail

Transportation services

Financial &

insurance services

Business services

Health & social welfare services

Membership organizations &

personal services Total

index

Hotels &

restaurants Publishing &

communications services

Real estate &

renting

Education services

Entertainment, cultural &

sports services Professional,

scientific &

technical services

Sewerage &

waste management

June 2016 service output by business

Month-on-month, publishing & communications services (up 1.8%), healthcare & social welfare services (up 1.6%), financial & insurance services (up 1.3%), wholesale & retail (up 0.6%) and hotels &

restaurants (up 0.1%) increased, while scientific & technical services (down 0.2%) and membership organizations & personal services (down 0.3%) decreased.

The service output in July is expected to be affected by decreases in domestic sales of cars and average daily stock transactions.

Average daily stock transactions (trillion won)

8.1 (Sep 2015) → 8.7 (Oct) → 8.3 (Nov) → 7.1 (Dec) → 8.3 (Jan 2016) → 7.8 (Feb) → 7.5 (Mar) → 8.1 (Apr)

→ 8.5 (May) → 9.1 (Jun) → 8.3 (Jul)

Wholesale & retail

-10 -5 0 5 10 15

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(%)

Wholesale & retail (m-o-m) Wholesale & retail (y-o-y)

(24)

8. Employment

The number of workers on payroll in June increased by 354,000 from a year earlier to 26,560,000, and the employment rate rose 0.5 percentage points to 66.5 percent.

By industry, services continued to lead employment growth.

By employment status, permanent workers continued to drive employment growth, while temporary, daily and self-employed workers fell at a slower pace.

Employment rate

Source: Statistics Korea (employment trends)

55 56 57 58 59 60 61 62 63 64

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(%)

Seasonally adjusted rate Original data

Number of persons employed and employment growth

21 22 23 24 25 26 27

-400 -200 0 200 400 600 800 1,000

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(thousands) (millions)

Employment growth (y-o-y, left) Number of employed (seasonally adjusted, right)

(25)

4.4 4.5 5.3 6.1 6.4 6.5 6.2 6.2 6.2 6.2 5.8 4.2 3.9 4.1 4.9 5.5 5.9 5.9 5.8 5.7 5.7 5.6 5.1 4.0 3.6 3.8 4.8 5.2 5.4 5.5 17.3 17.2 17.0 16.7 16.8 16.8 16.8 16.7 16.8 16.8 16.8 17.4 17.6 17.6 17.3 17.2 17.0 17.1 17.2 17.2 17.2 17.4 17.3 17.6 17.9 17.9 17.5 17.3 17.1 16.9 6.8 6.7 6.8 6.9 7.1 7.1 7.1 7.0 7.1 7.1 7.2 7.2 7.0 6.9 7.0 7.1 7.1 7.1 7.1 7.0 7.0 6.9 7.0 7.1 7.0 6.8 6.8 6.9 7.0 7.0 71.1 71.2 70.6 69.7 69.4 69.3 69.6 69.7 69.6 69.5 69.8 70.8 71.5 71.4 70.8 70.2 70.0 69.9 69.9 70.2 70.2 70.1 70.6 71.2 71.5 71.5 70.9 70.7 70.6 70.7

0 20 40 60 80 100

2014.1 2 3 4 5 6 7 8 9 10 11 12 2015.1 2 3 4 5 6 7 8 9 10 11 12 2016.1 2 3 4 5 6

Employment by industry

Services Construction Manufacturing Agriculture, forestry & fisheries

48.3 48.2 47.8 47.3 47.1 47.2 46.8 47.0 47.1 47.2 47.3 48.5 49.0 49.0 48.5 48.1 47.8 47.9 48.0 48.5 48.6 48.7 48.7 49.7 50.4 50.6 49.9 49.4 49.1 48.9 19.2 19.4 19.6 19.7 19.7 19.5 20.1 19.7 19.8 19.7 19.7 19.7 19.5 19.4 19.5 19.4 19.3 19.5 19.7 19.5 19.7 19.8 20.2 19.8 19.3 19.2 19.4 19.5 19.7 19.7 6.3 6.0 5.7 6.0 6.1 6.1 6.0 5.8 6.1 6.2 6.4 6.2 6.0 6.0 5.7 6.2 6.5 6.2 6.1 5.9 5.9 5.8 5.7 5.9 5.7 5.5 5.3 5.5 5.4 5.7 22.1 22.0 22.3 22.2 22.1 22.1 22.1 22.4 22.2 22.1 21.9 21.5 21.5 21.5 21.9 21.8 21.8 21.6 21.5 21.5 21.3 21.2 21.0 20.8 20.9 20.9 21.3 21.2 21.3 21.2 4.2 4.3 4.6 4.8 5.0 5.0 5.0 5.0 4.9 4.9 4.7 4.1 4.0 4.1 4.3 4.5 4.6 4.7 4.7 4.6 4.6 4.6 4.4 3.9 3.7 3.8 4.2 4.3 4.4 4.4

0 20 40 60 80 100

2014.1 2 3 4 5 6 7 8 9 10 11 12 2015.1 2 3 4 5 6 7 8 9 10 11 12 2016.1 2 3 4 5 6

Employment by status of workers

Unpaid family workers Self-employed workers Daily workers Temporary workers Permanent workers

2012 2013 2014 2015 2016

Annual Annual Annual Q3 Q4 Annual Q1 Q2 Q3 Q4 Jun Q1 May Jun Number of employed (millions) 24.68 25.07 25.60 25.93 25.77 25.94 25.27 26.10 26.24 26.14 26.21 25.55 26.45 26.56 Employment rate (%) 59.4 59.5 60.2 60.9 60.4 60.6 59.0 60.7 60.9 60.5 60.9 59.7 61.0 61.2 (Seasonally adjusted) 59.4 59.5 60.2 60.3 60.3 60.3 60.5 59.9 60.3 60.5 59.9 60.5 60.0 60.2 Employment growth (y-o-y, thousands) 437 386 533 517 422 337 354 308 310 376 329 287 261 354 (Excluding agriculture, forestry & fisheries) 451 394 601 638 531 444 441 435 419 482 452 341 360 453

- Manufacturing 14 79 146 194 129 156 139 147 164 176 133 126 50 15

- Construction 22 -19 42 57 72 27 72 44 11 -19 29 -7 -22 -24

- Services 416 318 424 403 336 250 222 235 234 309 282 216 325 454

- Agriculture, forestry & fisheries -14 -8 -68 -121 -109 -107 -87 -127 -115 -106 -123 -54 -99 -98

(26)

2012 2013 2014 2015 2016 Annual Annual Annual Q3 Q4 Annual Q1 Q2 Q3 Q4 Jun Q1 May Jun Employment growth (y-o-y, thousands) 437 386 533 517 422 337 354 308 310 376 329 287 261 354

- Wage workers 315 483 548 519 476 487 442 422 521 565 457 427 358 433

· Permanent workers 436 615 443 333 355 432 355 332 505 536 346 505 470 443

· Temporary workers -2 -96 140 226 141 54 82 3 1 129 65 15 158 107

· Daily workers -120 -37 -35 -40 -20 1 4 87 15 -100 47 -93 -270 -117

- Nonwage workers 121 -97 -15 -3 -54 -151 -88 -114 -211 -189 -128 -140 -98 -78

· Self-employed workers 124 -67 1 19 7 -89 -49 -37 -136 -135 -57 -96 -70 -29

- Male 234 186 266 268 196 132 141 145 111 132 131 107 105 192

- Female 203 200 267 249 226 205 213 163 199 244 199 180 155 162

- 15 to 29 -36 -50 77 102 56 68 32 90 50 100 71 40 72 131

- 30 to 39 -31 -21 -21 -7 -29 -38 -1 -56 -60 -36 -55 -21 -20 -28

- 40 to 49 11 22 38 15 4 -14 -47 -15 1 7 -12 6 -37 -33

- 50 to 59 270 254 239 215 190 149 177 138 145 135 155 84 83 88

- 60 or more 222 181 200 192 201 172 192 150 174 169 170 179 162 197

Unemployment rate

2 3 4 5 6

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(%)

Original data Seasonally adjusted rate

The number of unemployed persons in June was down 46,000 year-on-year to 1,004,000, and the unemployment rate fell 0.3 percentage points year-on-year to 3.6 percent. The unemployment rate fell in all age groups except in the group of those aged 15 to 29.

The economically inactive population in June increased 89,000 from a year earlier to 15,860,000, while the labor force participation rate rose 0.2 percentage points year-on-year to 63.5 percent.

The number of those economically inactive due to education (down 88,000) and childcare (down 83,000)

decreased, while those due to rest (up 133,000) increased.

(27)

2012 2013 2014 2015 2016

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

Number of unemployed

(thousands) 820 807 937 884 854 976 1,089 1,042 929 845 1,050 1,153 1,005 1,004

Unemployment growth

(y-o-y, thousands) -35 -13 137 107 121 40 58 65 45 -9 101 64 -17 -46

- Male -26 -6 49 37 59 24 25 42 31 -3 77 51 16 -15

- Female -9 -7 80 70 63 16 32 23 14 -6 24 13 -33 -32

Unemployment rate (%) 3.2 3.1 3.5 3.3 3.2 3.6 4.1 3.8 3.4 3.1 3.9 4.3 3.7 3.6

(Seasonally adjusted) 3.2 3.1 3.5 3.5 3.5 3.6 3.7 3.8 3.6 3.4 3.9 3.8 3.7 3.6

- 15 to 29 7.5 8.0 9.0 8.6 8.3 9.2 10.3 9.9 8.4 8.0 10.2 11.3 9.7 10.3

- 30 to 39 3.0 3.0 3.1 3.0 2.8 3.1 3.1 3.3 3.0 2.9 3.3 3.2 3.1 3.1

- 40 to 49 2.0 2.0 2.2 2.1 2.1 2.3 2.4 2.5 2.3 2.0 2.3 2.4 2.2 1.9

- 50 to 59 2.1 1.9 2.2 2.1 2.2 2.4 2.6 2.6 2.4 1.9 2.7 2.6 2.4 2.3

- 60 or more 2.4 1.8 2.3 1.5 1.6 2.5 4.1 2.2 2.0 2.1 2.1 4.2 2.4 2.0

2012 2013 2014 2015 2016

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

Economically inactive

population (millions) 16.08 16.22 15.98 15.76 16.07 16.11 16.47 15.84 15.92 16.19 15.77 16.57 15.93 15.86 Labor force participation rate (%) 61.3 61.5 62.4 63.0 62.4 62.6 61.5 63.2 63.0 62.5 63.3 61.7 63.3 63.5 (Seasonally adjusted) 61.3 61.5 62.4 62.5 62.4 62.6 62.8 62.3 62.5 62.6 62.3 62.8 62.3 62.5 Growth in economically

inactive population

(y-o-y, thousands) 128 141 -246 -222 -101 128 72 150 162 128 104 99 169 89

- Childcare -2 1 -39 -41 -31 8 41 50 3 -63 37 -115 -108 -83

- Housework 123 -3 -131 -99 -67 -45 -91 -41 -19 -29 -72 32 84 76

- Education -12 77 -81 -109 -72 -146 -141 -213 -112 -118 -212 -108 -67 -88

- Old age 148 54 93 91 89 109 68 95 103 171 96 161 111 106

- Rest -53 -7 -92 -65 -15 141 154 151 123 136 102 97 140 133

Labor force participation rate

57 58 59 60 61 62 63 64 65

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(%)

Original data Seasonally adjusted rate

(28)

9.1 Stock market

The KOSPI rose 2.3 percent in July from 1,970.4 points to 2,016.2 points, and the KOSDAQ was up 4.6 percent from 675.1 points to 706.2 points.

Global investor sentiment improved as investors expected further monetary easing in major economies after the UK’s decision to leave the EU in June. Foreign portfolio investors were net buyers of Korean shares for 15 consecutive days from July 11 to 29, with their net buying amounting to 4.0 trillion won during the period. For the entire month, foreign investors’ net buying of Korean shares recorded 4.1 trillion won.

9. Financial markets

(Closing rate)

1. Change from the end of the previous month in July 2016 Source: Korea Exchange

KOSPI KOSDAQ

Jun 2016 Jul 2016 Change¹ Jun 2016 Jul 2016 Change¹

Stock price index (points) 1,970.4 2,016.2 +45.8 (+2.3%) 675.1 706.2 +31.1 (+4.6%)

Market capitalization (trillion won) 1,250.2 1,283.2 +33.0 (+2.6%) 208.1 215.4 +7.3 (+3.5%)

Average daily trade value (trillion won) 5.2 4.2 -1.0 (-19.2%) 3.9 4.1 +0.2 (+5.1%)

Foreign stock ownership (%, %p) 33.35 33.84 +0.49 (+1.5%) 9.82 9.82 - -

Stock prices

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(monthly average)

KOSPI KOSDAQ

(29)

Foreign exchange rates

Source: Bank of Korea

600 800 1,000 1,200 1,400 1,600 1,800

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(month-end, \)

Dollar-Won 100 Yen-Won

1. Appreciation from the end of the previous year in July 2016 (%); the exchange rate is based on the closing price at 3:00 p.m., local time.

(Closing rate)

2010 2011 2012 2013 2014 2015 2016

Dec Dec Dec Dec Dec Dec Jun Jul Change¹

Dollar-Won 1,134.8 1,151.8 1,070.6 1,055.4 1,099.3 1,172.5 1,151.8 1,120.2 +2.8

100 Yen-Won 1,393.6 1,481.2 1,238.3 1,002.3 913.0 974.1 1,122.8 1,081.6 +3.8

9.3 Bond market

Treasury bond yields continued to fall in July amid expectations for accommodative monetary policies in major economies including the US and Japan. On July 28, 3-year, 5-year and 10-year bond yields fell to record lows of 1.203 percent, 1.217 percent and 1.357 percent, respectively, after the US Fed’s decision to leave its benchmark interest rate unchanged. 20-year and 30-year bond yields also reached record lows of 1.433 percent and 1.456 percent, respectively, on the same day.

9.2 Exchange rate

The dollar-won exchange rate fell to 1,120.2 won at the end of July due to increased risk-taking by global investors, foreigners’ net buying of Korean shares and lower expectations for a US interest rate hike.

The 100 yen-won exchange rate fell 3.8 percent in July to close the month at 1,081.6 won as the yen

depreciated due to increased risk appetite among investors and amid expectations for extra stimulus in

Japan. The dollar-yen exchange rate rose to 107.1 yen on July 21 amid heightened expectations for a

massive new fiscal stimulus package pledged by Japanese Prime Minister Shinzo Abe on July 11, before

falling back to 103.6 yen at the end of the month as investors were disappointed by the Bank of Japan’s

decision to keep interest rates unchanged on July 29.

(30)

1 2 3 4 5 6 7 8 9

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(monthly average, yearly, %)

Interest rates

Overnight call rate (daily) 3-yr Treasury bond yield 3-yr corporate bond yield

2010 2011 2012 2013 2014 2015 2016

Dec Dec Dec Dec Dec Dec May Jun Jul Change¹

Call rate (1 day) 2.51 3.29 2.77 2.52 2.03 1.52 1.48 1.23 1.24 +1

CD (91 days) 2.80 3.55 2.89 2.66 2.13 1.67 1.56 1.37 1.36 -1

Treasury bonds (3 yrs) 3.38 3.34 2.82 2.86 2.10 1.66 1.50 1.25 1.22 -3

Corporate bonds (3 yrs) 4.27 4.21 3.29 3.29 2.43 2.11 1.95 1.69 1.64 -5

Treasury bonds (5 yrs) 4.08 3.46 2.97 3.23 2.28 1.81 1.58 1.30 1.24 -6

(Closing rate, %)

1. Basis points, changes from the previous month in June 2016 Source: Bank of Korea

9.4 Money supply and money market

M2 (monthly average) in May increased 6.7 percent from a year earlier, a slower pace than the previous month, as private sector credit and foreign investment in Korean shares decreased year-on-year.

1. Balance at end May 2016, trillion won

2. M1 excluding corporate MMFs and individual MMFs while including CMAs 3. Liquidity aggregates of financial institutions (mostly identical with M3) Source: Bank of Korea

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

2010 2011 2012 2013 2014 2015 2016

Annual Annual Annual Annual Annual Annual Mar Apr May May¹

M1² 11.8 6.6 3.8 9.5 10.9 18.6 18.8 18.0 16.2 724.8

M2 8.7 4.2 5.2 4.8 6.6 8.6 7.8 7.0 6.7 2,318.5

Lf³ 8.2 5.3 7.8 6.9 7.0 9.7 8.6 8.0 7.7 3,196.2

(31)

Bank deposits increased 14.3 trillion won in June. Instant access deposits surged 18.3 trillion won as the government expanded fiscal expenditures in line with its plan to frontload 59.5 percent of spending in the first half of the year.

Asset management company (AMC) deposits shifted to a decrease compared to the previous month.

Money market funds (MMFs) decreased 9.0 trillion won as the government retrieved surplus funds, while corporations withdrew funds to improve their financial ratios at the end of the first half.

-30 -20 -10 0 10 20 30 40 50 60

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(y-o-y, end of month balance, trillion won)

Deposits in financial institutions

1. Balance at end June 2016 Source: Bank of Korea

(Change from the end of the previous period, trillion won)

2010 2011 2012 2013 2014 2015 2016

Annual Annual Annual Annual Annual Annual Mar Apr May Jun Jun¹

Bank deposits 36.9 58.9 37.0 41.0 115.4 100.3 3.3 -11.0 11.4 14.3 1,419.5

AMC deposits -16.7 -16.6 18.8 17.7 42.4 44.4 -11.1 7.4 13.9 -4.6 462.5

Total money supply

-20 -10 0 10 20 30 40

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(y-o-y, monthly average balance, %)

Reserve money M1 Lf

(32)

10. Balance of payments

Korea’s current account (preliminary) in June posted a surplus of US $12.17 billion, staying in the black for 52 consecutive months.

The goods account surplus increased month-on-month from US $10.74 billion to US $12.82 billion.

Growth in goods exports (y-o-y, %) -2.4 (May 2016) → -7.4 (Jun) Growth in goods imports (y-o-y, %) -8.6 (May 2016) → -10.1 (Jun)

Export growth by item in June (y-o-y, %, customs clearance basis)

-2.7 (total), -2.3 (steel), -0.5 (semiconductors), -12.3 (automobiles), -1.4 (mobile phones), 29.6 (vessels), -27.2 (oil products) Import growth by category in June (y-o-y, %, customs clearance basis)

-7.7 (total), -14.1 (commodities), -3.9 (capital goods), 4.8 (consumer goods)

-5 0 5 10 15

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(US$ billion)

Current account balance

Source: Bank of Korea (balance of payments trends)

Goods account Services account Current account

The services account deficit expanded month-on-month from US $1.14 billion to US $1.38 billion, despite an improvement in the intellectual property rights account, as deficits in the travel and transportation accounts rose.

Services account balance (US $ billion, May → Jun)

-0.45 → -0.49 (manufacturing), -0.16 → -0.28 (transportation), -0.25 → -0.74 (travel), 0.84 → 0.74 (construction), -0.45 → 0.04 (intellectual property rights), -0.73 → -0.75 (other businesses)

(33)

The capital and financial account (preliminary) in June saw an outflow of US $9.60 billion.

Capital & financial account balance* (US $ billion)

10.31 (Jun 2015) → 7.86 (Dec) → 6.48 (Jan 2016) → 9.50 (Feb) → 12.24 (Mar) → 0.17 (Apr) → 8.93 (May) → 9.60 (Jun)

* Positive figures represent net outflows, and negative figures represent net inflows.

Net outflows of FDI increased from US $0.72 billion a month earlier to US $1.48 billion as Korean FDI increased at a faster pace (up US $1.91 billion → up US $2.82 billion) than inbound FDI (up US $1.19 billion → up US $1.35 billion).

Net outflows of portfolio investment increased from US $4.36 billion to US $6.20 billion as foreign investment in Korean shares turned to a decrease (up US $0.71 billion → down US $2.22 billion),

1. Preliminary Source: Bank of Korea

(US $ billion)

2014 2015 2016

Annual Annual¹ Q1¹ Q2¹ Q3¹ Q4¹ Jun¹ Q1¹ Q2¹ May¹ Jun¹

Current account 84.37 105.87 22.44 27.92 29.11 26.41 11.87 24.08 25.90 10.36 12.17

- Goods balance 88.89 120.29 24.22 33.68 30.64 31.76 12.80 27.88 33.12 10.74 12.82

- Services balance -3.68 -15.71 -4.39 -3.09 -3.56 -4.67 -2.20 -4.17 -4.14 -1.14 -1.38

- Primary income balance 4.15 5.90 3.83 -1.56 2.73 0.90 1.50 1.25 -1.90 0.91 1.26

- Secondary income balance -4.98 -4.61 -1.22 -1.11 -0.70 -1.58 -0.22 -0.88 -1.18 -0.15 -0.52

The primary income account surplus increased from US $0.91 billion to US $1.26 billion due to surpluses in the dividend income account. The secondary income account deficit rose from US $0.15 billion to US $0.52 billion.

Travel balance

-3 -2 -1 1 2 3 4

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(US $ billion)

Travel balance Travel revenue Travel payment

(34)

although Korean investment in foreign shares grew at a slower pace (up US $5.07 billion → up US $3.98 billion).

Financial derivatives investment reversed from a net outflow of US $0.46 billion to a net inflow of US $0.37 billion. Net outflows of other investment decreased from US $3.92 billion to US $2.23 billion.

The current account surplus is expected to decrease in July as net exports fell to US $7.8 billion.

Capital & financial account balance

-15 -10 -5 0 5 10 15

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1

(US$ billion)

Direct investment Portfolio investment Financial derivatives Capital & financial account

11.1 Consumer prices

Consumer prices rose 0.7 percent year-on-year in July, a slower pace than the previous month, as prices of public services and manufactured products excluding oil products increased at a slower pace.

11. Prices

(%)

2015 2016

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

Year-on-Year 0.2 -0.2 0.0 -0.1 0.3 0.0 0.8 -0.3 0.1 0.0 0.0 0.1

Month-on-Month 0.7 0.6 0.9 1.0 1.3 0.8 1.3 1.0 1.0 0.8 0.8 0.7

CONOMICULLETIN Vol.38 No.8 Republic of Korea

eb.kdi.re.kr

Vol.38 No.8

August 2016

Republic of Korea

C ONOMIC

U L L E T I N

Policy Issue

Economic News Briefing

Statistical Appendices The Green Book:

Current Economic Trends

02

50 43

53

The Green Book: Current Economic Trends

02

Economic News Briefing

49

Policy Issue

43

Statistical Appendices 53

contents

Green Book: The Current Economic

Trends

Overview

01. External economic situation 02. Private consumption 03. Facility investment 04. Construction investment 05. Exports and imports

06. Mining and manufacturing production 07. Service sector activity

08. Employment 09. Financial markets 10. Balance of payments 11. Prices

12. Real estate market

13. Composite indices of business cycle indicators

Overview

The Korean economy has seen domestic demand pick up as government measures helped boost consumption, while production remains weak due to export slowdown.

The economy added more jobs in June than the previous month (up 261,000 → up 354,000, y-o-y) led by the service sector, due to a low base effect from a year ago when service industries were hit by the MERS outbreak. Job growth continued to decelerate in the manufacturing sector.

Consumer prices rose at a slower rate in July compared with the previous month (up 0.8% → up 0.7%, y-o-y), as the effect of public service fee increases diminished.

Mining and manufacturing production fell 0.2 percent month-on-month in June as the production of automobiles, steel and vessels declined due to a high base effect and sluggish exports.

Service output continued to grow in June, up 1.0 percent month-on-month, backed by an increase in automobile sales and stock transactions.

Retail sales rose 1.0 percent in June led by durable goods sales, as automobile sales jumped before the sunset of the individual consumption tax cut on cars, scheduled at the end of June.

Facility investment continued to increase in June, up 4.5 percent month-on-month, led by transportation equipment. Construction completed rose 3.1 percent from the previous month, helped by the public sector which has been boosted by frontloaded budget spending.

In June, the cyclical indicator of the coincident composite index rose 0.2 points, backed by strong production and retail sales indices, and the cyclical indicator of the leading composite index fell 0.1 points, due to a decrease in construction orders received.

Exports declined at a faster pace in July, down 10.2 percent year-on-year, partly due to fewer days worked and suspended delivery of vessels.

Stock prices rose and Korea Treasury bond yields declined in July in line with increased expectations for expansionary monetary policies in major economies following the Brexit referendum. The Korean won strengthened against both the US dollar and the Japanese yen as global risk aversion eased.

Housing prices increased at the same rate as the previous month in July (up 0.04%), while Jeonse (lump- sum deposits with no monthly payments) prices rose at a slower pace (up 0.11% → up 0.08%).

Recovery in domestic demand could be limited due to government measures to stimulate the economy becoming less effective, for example, with the expiration of the individual consumption tax cut on cars, while external and internal risks to the economy from Brexit and industrial restructuring remain.

The government will closely monitor domestic and global economic developments as well as examine

the possible impact of internal and external uncertainties on domestic financial markets.

The government will actively respond to any risks to the economy and employment by implementing expansionary fiscal policies, including the supplementary budget, as well as other policies aimed at increasing consumption and investment.

1. External economic situation

Major economies including the US and eurozone have yet to build up recovery momentum and emerging economies including China continue to struggle, while risks to the global economy, such as a Fed rate hike and Brexit, remain.

The US economy grew 1.2 percent (annualized, q-o-q) in the second quarter of 2016, falling short of the forecast for 2.4 percent growth, due to declining investment and falling inventories, even though consumption and employment improved.

Industrial production rose 0.6 percent month-on-month in June due to an increase in the production of durable goods (up 3.4%), including automotive products (up 6.3%), while the ISM manufacturing index for July fell.

Retail sales rose 0.6 percent month-on-month in June, increasing for the third consecutive month, however, consumer confidence fell in July due to concerns over the impact of Brexit.

Existing home sales grew 1.1 percent month-on-month to an annualized pace of 5,570,000 in June, reaching the highest in nine years for the second consecutive month, while home prices and new home sales also increased.

US

Nonfarm payrolls added more than 250,000 jobs for the second straight month in July (255,000 jobs), backed by the strong service sector, while the unemployment rate was 4.9 percent, staying at a similar level to the previous month.

US GDP growth and industrial production

China

China’s economy grew 6.7 percent year-on-year in the second quarter, beating market expectations for 6.6 percent growth, as strong service sector growth and public sector investment offset the weak manufacturing sector.

Consumption has contributed more to GDP growth as China’s economy undergoes structural changes.

China’s GDP growth and fixed asset investment

Japan

Japan’s GDP growth and industrial production

Eurozone

The eurozone economy slowed in the second quarter, growing 0.3 percent compared with the previous quarter, due to deteriorating global conditions, while the impact of Brexit could dampen growth further in the second half of the year.

Eurozone’s GDP growth and industrial production

Private consumption (preliminary GDP) in the second quarter of 2016 rose 0.9 percent compared to the previous quarter and rose 3.2 percent compared to a year ago.

2. Private consumption

Private consumption

Retail sales in June rose 1.0 percent month-on-month, as sales of durable goods (up 3.0%), such as automobiles, and sales of nondurable goods (up 0.8%), such as food, increased, while sales of semi- durable goods fell (down 1.5%). Year-on-year, the index rose 8.9 percent.

Retail sales in July are forecast to slow, despite sales at department stores and large discount stores

continuing to increase, due to declining domestic sales of cars.

3. Facility investment

Facility investment (advanced estimates of GDP) rose 2.9 percent quarter-on-quarter but fell 2.6 percent year-on-year in the second quarter of 2016.

Retail sales by type

Retail sales

Facility investment

Facility investment by type

Leading indicators of facility investment

The facility investment index in June rose 4.5 percent month-on-month as both machinery and transportation equipment investment rose. The index increased 2.0 percent year-on-year.

Facility investment outlooks are mixed as domestic machinery orders increased further, while the average manufacturing operation ratio remains low and automobile sales fell.

Construction investment