Vol.35 No.2 ECONOMIC BULLETIN

ECONOMIC BULLETIN

Republic of Korea

February 2013

Vol.35 No.2

ISSN 2287-7266

The Green Book:

Current Economic Trends Economic News Briefing

Korea Grows 0.4% in Q4

Korea-China Currency Swap Line Used for First Time OECD Reviews Korea’s Development Aid Program Korea Ranks 8^th in IBP Survey

Statistical Appendices 03

50

55

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Republic of Korea

ECONOMIC BULLETIN (Republic of Korea)Vol.35 No.2 February 2013

Economic Bulletin

Republic of Korea

February 2013

Vol.35 No.2

The Green Book: Current Economic Trends

Overview

1. External economic situation 2. Private consumption 3. Facility investment 4. Construction investment 5. Exports and imports

6. Mining and manufacturing production 7. Service sector activity

8. Employment 9. Financial markets

9.1 Stock market 9.2 Exchange rate 9.3 Bond market

9.4 Money supply & money market 10. Balance of payments

11. Prices and international commodity prices 11.1 Prices

11.2 International oil and commodity prices 12. Real estate market

12.1 Housing market 12.2 Land market

13. Composite indices of business cycle indicators

Economic News Briefing Statistical Appendices

... 03

... 04

... 09

... 14

... 17

... 19

... 22

... 24

... 27

... 31

... 35

... 38

... 43

... 48

... 50

... 55

Contents

The Korean economy has seen inflation remain stable and major economic indicators including production, investment and exports somewhat improve, but employment growth has been slowing down and consumption has been sluggish.

In December, the economy added 277,000 jobs year-on-year, but posted a slowdown in employment growth for the third consecutive month.

Consumer price inflation stayed stable in the 1 percent range in January, up from the previous month’s 1.4 percent to 1.5 percent, as falling petroleum product prices offset high agricultural product prices triggered by cold weather and heavy snowfall.

Mining and manufacturing production went up 1.0 percent month-on-month in December thanks to a rise in audio-visual communications equipment and semiconductors, while service output improved by 0.1 percent with rebounding transportation and financial & insurance services.

In December, retail sales fell 1.1 percent from the previous month due to a decrease in semi-durable and non-durable goods sales, despite strong durable goods sales.

Facility investment in December jumped 9.9 percent month-on-month due to brisk machinery and transportation equipment investment. Construction investment went up 5.8 percent helped by an improvement in building construction.

Exports rose 11.8 percent year-on-year in January with exports to China and the ASEAN countries continuing to be strong and also due to an increase in the number of working days. The trade balance remained in the black at US$0.87 billion.

The cyclical indicator of the coincident composite index increased 0.1 point month-on-month in December, and the leading composite index rose 0.4 points.

In January, both the stock prices and the won fell due to companies’ poor business performance in the fourth quarter and increased foreign capital outflows.

Housing prices in January continued to decline, down 0.3 percent, while rental prices increased 0.3 percent month-on-month.

External uncertainties linger, as worries over automatic spending cuts in the US continue, and as the European economy is slow to recover. Domestic uncertainties also persist due to weak consumption, unstable investment and increased volatility in exchange rates.

The Korean government will continue to watch the global and domestic economy, strengthen the monitoring of domestic and foreign markets, and reinforce policy responses to stimulate the economy.

At the same time, the government will focus on securing the lives of the low- and middle-income classes through job creation and by stabilizing the prices of necessities, while continuing to adopt policies to improve the health of the economy.

Overview

The Green Book

Current Economic Trends

The economic slump in China appears to be easing, but uncertainties and downside risks remain, such as fiscal anxiety in the US and the persisting fiscal crisis in Europe. The IMF, in its World Economic Outlook Update, downgraded its global economic growth forecast for 2013 to 3.5 percent from 3.6 percent, and the forecast for 2014 to 4.1 percent from 4.2 percent. The report promotes a banking union and fiscal integration in the eurozone and advises the US “to agree on a credible medium-term fiscal consolidation plan.”

In the US, fiscal anxiety was temporarily relieved when legislation to push back the debt ceiling to May 19 was passed, but uncertainty remains as automatic spending cuts are set to take effect at the end of February and differences between political parties surrounding fiscal consolidation go on.

Meanwhile, downside risks persist in the eurozone, as there is a possibility that political uncertainty will worsen as Italy faces early elections on February 24 and 25, and large amounts of sovereign debt are due to mature in the first half of the year.

Italian sovereign debt to come due (billion euros)

21.8 (Jan 2013) [ 49.8 (Feb) [ 27.3 (Mar) [ 47.6 (Apr) [ 19.8 (May) [ 37.0 (Jun) Spanish sovereign debt to come due (billion euros)

28.6 (Jan 2013) [ 10.2 (Feb) [ 15.0 [ (Mar) 25.8 [ (Apr) 9.2 [ (May) [ 9.7 (Jun)

The US economy shrank 0.1 percent (annualized, quarter-on-quarter, advanced estimate) in the fourth quarter of 2012, registering its first contraction since the second quarter of 2009, but economic indicators, including production, consumption and the housing market all somewhat improved. Government spending on defense fell, businesses reduced their inventories, and exports turned negative, all of which contributed to the contraction.

US

World GDP growth

6 5 4

3 2 1 0 -1

(%)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1.

External

economic

situation

However, private consumption, which accounts for 70 percent of economic activity in the US, improved somewhat on the back of durable goods consumption, corporate investment turned positive on a foundation of increasing facilities and software investment, and housing investment improved for the seventh consecutive quarter.

Quarter-on-quarter increase (Q3 [ Q4, %)

Durable goods consumption (8.9 [ 13.9), facilities and software investment (-2.6 [ 12.4) Industrial production and retail sales increased month-on-month in December, and economic indicators somewhat improved as the ISM Manufacturing Index exceeded its baseline of 50 for the second straight month.

ISM Manufacturing Index (base=50)

52.5 (May 2012) [ 50.2 (Jun) [ 50.5 (Jul) [ 50.7 (Aug) [ 51.6 (Sep) [ 51.7 (Oct) [ 49.9 (Nov) [ 50.2 (Dec) [ 53.1 (Jan 2013)

Housing prices increased for ten months in a row, and existing home sales in 2012 rose by 9.0 percent compared with the previous year, the highest increase in five years.

Case-Shiller Home Price Index (seasonally adjusted)

140.2 (May 2012) [ 141.6 (Jun) [ 142.0 (Jul) [ 142.7 (Aug) [ 143.2 (Sep) [ 144.1 (Oct) [ 145.0 (Nov)

In January 2013, increases in nonfarm payrolls remained steady and the long-term unemployment rate fell compared to the previous month, but the unemployment rate marginally increased.

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

87 (Jun 2012) [ 153 (Jul) [ 165 (Aug) [ 138 (Sep) [ 160 (Oct) [ 247 (Nov) [ 196 (Dec) [157 (Jan 2013)

Long-term unemployment rate (%)

41.7 (Jun 2012) [ 40.6 (Jul) [ 40.0 (Aug) [ 40.3 (Sep) [ 40.8 (Oct) [ 40.0 (Nov) [ 39.1 (Dec) [ 38.1 (Jan 2013)

(Percentage change from previous period)

2010 2011 2012¹ 2013¹

Annual Annual Q3 Q4 Annual Q1 Q2 Q3 Q4 Dec Jan

Real GDP² 2.4 1.8 1.3 4.1 2.2 2.0 1.3 3.1 -0.1 - -

- Personal consumption expenditure 1.8 2.5 1.7 2.0 1.9 2.4 1.5 1.6 2.2 - -

- Corporate fixed investment 0.7 8.6 19.0 9.5 7.7 7.5 3.6 -1.8 8.4 - -

- Housing construction investment -3.7 -1.4 1.4 12.1 11.9 20.5 8.5 13.5 15.3 - -

Industrial production 5.3 4.1 1.7 0.9 3.7 1.4 0.6 0.0 0.2 0.3 -

Retail sales 5.5 8.0 1.2 1.9 3.4 1.7 -0.3 1.3 1.4 0.5 -

Existing home sales -3.4 2.4 1.7 2.8 9.0 4.6 -0.7 2.8 5.0 -1.0 -

Unemployment rate³ 9.6 9.0 9.1 8.7 8.1 8.3 8.2 8.1 7.8 7.8 7.9

Consumer prices 1.6 3.2 0.8 0.2 2.1 0.6 0.2 0.6 0.5 0.0 -

1. Preliminary 2. Annualized rate (%) 3. Seasonally adjusted

Source: US Department of Commerce

US nonfarm payroll growth and unemployment rate

Sourse : US Department of Labor

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

12

10

8

6

4

2

0

US nonfarm payroll growth (m-o-m, left) Unemployment rate (right)

2001. 1 2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1 2010. 1 2011. 1 2012. 1 2013. 1

Chinese economic indicators improved across the board in the fourth quarter of 2012, as the economy rebounded for the first time in two years helped by steady exports, consumption and production.

However, consumer prices, which had been stable, have rebounded since November, rising for two consecutive months.

China

US GDP growth and industrial production

Source: US Department of Commerce & US Federal Reserve Board

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

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

2001. Q1 2002. Q1 2003. Q1 2004. Q1 2005. Q1 2006. Q1 2007. Q1 2008. Q1 2009. Q1 2010. Q1 2011. Q1 2012. Q1

China’s GDP growth and fixed asset investment

Source: National Bureau of Statistics of China

18 16 14

12 10 8 6 4

70 60 50

40 30 20 10 0

(%) (%)

2001. Q1 2002. Q1 2003. Q1 2004. Q1 2005. Q1 2006. Q1 2007. Q1 2008. Q1 2009. Q1 2010. Q1 2011. Q1 2012. Q1

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

(Percentage change from same period in previous year)

2011 2012¹

Annual Q3 Q4 Annual Q1 Q2 Q3 Q4 Oct Nov Dec

Real GDP 9.2 9.1 8.9 7.8 8.1 7.6 7.4 7.9 - - -

Industrial production² 13.9 13.8 12.8 10.1 11.6 9.5 9.1 10.0 9.6 10.1 10.3

Fixed asset investment (accumulated) 25.1 28.0 28.0 20.6 21.3 20.8 21.0 20.6 20.7 20.7 20.6

Retail sales 17.1 17.3 17.5 14.3 14.9 13.9 13.5 14.9 14.5 14.9 15.2

Exports 20.3 20.5 14.3 8.3 7.6 10.5 4.5 9.5 11.6 2.9 14.1

Consumer prices² 5.4 6.3 4.6 2.6 3.8 2.8 1.9 2.1 1.7 2.0 2.5

Producer prices² 6.0 7.1 3.1 -1.7 0.1 -1.4 -3.3 -2.3 -2.8 -2.2 -1.9

1. Preliminary

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

Japanese exports continued to be poor as Japan posted a trade account deficit for the sixth straight month in December, but real indicators, such as retail sales and industrial production, marginally improved.

Trade account balance (billion yen)

-1,481 (Jan 2012) [ 25 (Feb) [ -87 (Mar) [ -524 (Apr) [ -917 (May) [ 59 (Jun) [ -523 (Jul) [ -764 (Aug) [ -565 (Sep) [ -551 (Oct) [ -955 (Nov) [ -642 (Dec)

Japan

Japan’s GDP growth and industrial production

Source: Japan’s Cabinet Office, Ministry of Economy, Trade and Industry

6

4

2

0

-2

-4

-6

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

(%) (%)

2001. Q1 2002. Q1 2003. Q1 2004. Q1 2005. Q1 2006. Q1 2007. Q1 2008. Q1 2009. Q1 2010. Q1 2011. Q1 2012. Q1

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

(Percentage change from previous period)

2010 2011 2012¹

Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 Q3 Oct Nov Dec

Real GDP 4.4 -0.8 -2.0 -0.5 1.8 0.1 1.3 0.1 -0.9 - - -

Industrial production² 17.3 -2.4 -2.0 -4.0 4.3 -0.4 1.3 -2.0 -4.2 1.6 -1.4 2.5

Retail sales (y-o-y)² 2.5 -1.2 -2.7 -1.6 -1.0 0.7 5.2 3.2 0.5 -1.2 1.2 0.4

Exports (y-o-y) 26.1 -2.6 2.7 -8.1 0.6 -5.4 1.0 9.2 -4.2 -6.5 -4.1 -5.8

Consumer prices (y-o-y) -0.7 -0.3 -0.5 -0.4 0.1 -0.3 0.3 0.1 -0.4 -0.4 -0.2 -0.1

1. Preliminary

2. Quarterly change: average of monthly change

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

Retail sales in the eurozone took its largest fall since April 2012 in December, declining 0.8 percent month-on-month. The manufacturing PMI marginally rose from the previous month in January 2013, but remained below its baseline of 50 for the 18^th consecutive month.

Manufacturing PMI (base = 50)

45.1 (Jun 2012) [ 44.0 (Jul) [ 45.1 (Aug) [ 46.1 (Sep) [ 45.4 (Oct) [ 46.2 (Nov) [ 46.1 (Dec) [ 47.9 (Jan 2013)

The unemployment rate in December showed little change compared with the previous month, remaining at 11.7 percent. The youth unemployment rate was 24.0 percent.

Unemployment rate ^(%)

11.4 (Jun 2012) [ 11.4 (Jul) [ 11.5 (Aug) [ 11.6 (Sep) [ 11.7 (Oct) [ 11.7 (Nov) [ 11.7 (Dec)

Eurozone

(Percentage change from previous period)

2010 2011 2012¹

Annual Annual Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Nov Dec

Real GDP 2.0 1.4 0.6 0.2 0.1 -0.3 0.0 -0.2 -0.1 - - -

Industrial production 7.4 3.5 0.9 0.2 0.8 -2.1 -0.5 -0.5 0.4 - -0.3 -

Retail sales (y-o-y) 0.9 -0.5 -0.1 -0.4 0.3 -1.2 -0.3 -0.8 0.0 -1.6 -0.1 -0.8

Exports (y-o-y) 20.1 12.7 21.5 13.0 9.4 8.3 8.5 8.1 7.3 - 5.4 -

Consumer prices (y-o-y) 1.6 2.7 2.5 2.8 2.7 2.9 2.7 2.7 2.5 2.3 2.2 2.2

1. Preliminary Source: Eurostat

Eurozone’s GDP growth and industrial production

Source: Eurostat

3

2

1

0

-1

-2

-3

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

(%) (%)

2001. Q1 2002. Q1 2003. Q1 2004. Q1 2005. Q1 2006. Q1 2007. Q1 2008. Q1 2009. Q1 2010. Q1 2011. Q1 2012. Q1

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

Private consumption in the fourth quarter (advanced estimates of GDP) increased 0.8 percent quarter-on-quarter and 2.8 percent year-on-year.

2.

Private

consumption

(Percentage change from previous period)

2011¹ 2012¹

Annual Q1 Q2 Q3 Q4 Annual Q1 Q2 Q3 Q4

Private consumption² 2.3 0.6 0.8 0.2 -0.4 1.8 1.0 0.4 0.7 0.8

(y-o-y) - 2.9 3.0 2.1 1.1 - 1.6 1.1 1.6 2.8

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

Private consumption

Source: The Bank of Korea (national accounts)

14 12 10 8 6 4 2 0 -2 -4 -6

(%)

2001. Q1 2002. Q1 2003. Q1 2004. Q1 2005. Q1 2006. Q1 2007. Q1 2008. Q1 2009. Q1 2010. Q1 2011. Q1 2012. Q1

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

Retail sales fell 1.1 percent month-on-month in December despite strong durable goods sales, as sales of semi-durable goods, such as clothing, and non-durable goods, such as car fuel, fell. However, the index rose 1.5 percent year-on-year.

Durable goods sales went up 3.5 percent with automobile sales increasing ahead of the expiration of the individual consumption tax cut. Semi-durable goods and non-durable goods sales fell month-on-month by 5.1 percent and 3.3 percent, respectively, due to a base effect and a decline in outdoor activities attributed to the cold weather and heavy snowfall.

(Percentage change from previous period)

2011¹ 2012

Annual Q1 Q2 Q3 Q4 Annual¹ Q1 Q2 Q3 Q4¹ Nov¹ Dec¹

Retail sales 4.3 1.5 0.1 1.6 -1.3 1.8 1.0 0.2 1.6 0.2 2.5 -1.1

(y-o-y) - 5.4 5.7 4.7 1.9 - 2.0 1.0 1.6 2.5 4.1 1.5

- Durable goods² 10.8 4.3 -0.5 1.8 -2.4 5.1 3.0 1.3 4.0 1.9 0.0 3.5

• Automobiles 5.9 5.9 -4.9 3.6 -11.3 1.4 2.8 8.1 -0.8 8.2 -2.8 3.5

- Semi-durable goods³ 4.2 0.8 0.7 1.2 -0.3 0.5 -0.3 -0.3 -1.4 4.1 5.9 -5.1

- Non-durable goods⁴ 1.1 0.2 0.0 2.1 -0.5 0.9 0.7 -1.0 1.7 -2.1 2.5 -3.3

1. Preliminary

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

3. Semi-durable goods: Clothing, footwear, etc.

4. Non-durable goods: Food, medicine, cosmetics, fuel, tobacco, etc.

Source: Statistics Korea

Sales at department stores, specialized retailers, nonstore retailers and large discount stores all decreased.

(Percentage change from previous period)

2011 2012

Annual Q1 Q2 Q3 Q4 Annual¹ Q1 Q2 Q3 Q4¹ Nov¹ Dec¹

Department stores 8.1 2.2 0.5 1.2 -0.6 1.7 -0.8 1.1 0.8 2.7 7.3 -8.5

Large discount stores 3.9 1.2 1.0 0.2 0.3 -1.0 -1.2 -2.1 2.3 -0.7 7.9 -4.6

Specialized retailers² 3.3 1.3 -0.5 2.1 -3.1 0.7 1.5 -0.2 1.7 -0.1 0.4 -0.2

Nonstore retailers 8.6 1.4 1.2 2.8 0.6 7.1 2.7 2.4 0.5 1.7 -3.0 -1.3

1. Preliminary

2. Specialized retailers are defined as stores carrying a few (1 to 3) specialized items.

Source: Statistics Korea

Retail sales

Source: Statistics Korea (industrial activity trend)

25

20 15 10 5 0 -5 -10

(%)

2001. 1 2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1

Consumer goods sales (m-o-m) Consumer goods sales (y-o-y)

2010. 1 2011. 1 2012. 1

Retail sales by type

Source: Statistics Korea (industrial activity trend)

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

(y-o-y, %)

2001. 1

Durable goods Semi-durable goods Non-durable goods

2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1 2010. 1 2011. 1 2012. 1

January retail sales may slow down owing to temporary factors, such as the Lunar New Year holiday falling late this year and the expiration of the individual consumption tax cut.

Domestic sales of automobiles slowed down in January due to the end of the individual consumption tax cut.

In January, department store and large discount store sales declined, affected by the Lunar New Year holiday falling late this year, which fell on February instead of January last year.

Gasoline sales in January recovered somewhat from poor sales in the previous month and increased year-on-year as the prices of gasoline fell and temporary factors such as heavy snowfall were alleviated.

Gasoline prices (won/liter)

1,932 (4^th week Dec) [ 1,930 (1^st week Jan) [ 1,927 (2^nd week) [ 1,925 (3^rd week) [ 1,922 (4^th week) [ 1,920 (5^th week)

Growth in credit card use decreased due to a slowdown in department store and large discount store sales.

(y-o-y, %)

2012 2013

May Jun Jul Aug Sep Oct Nov Dec Jan

Credit card sales 15.3 13.7 13.7 8.0 15.7 9.2 14.2 7.1 6.2

Department store sales 1.0 -2.0 -1.3 -6.9 -0.8 -0.4 9.1 -0.2 -8.4

Large discount store sales -5.7 -7.2 -8.2 -3.3 0.2 -6.6 -1.7 -5.0 -24.3

Domestic sales of gasoline 5.2 8.2 -2.1 -2.7 1.6 7.9 3.7 -2.8 2.7

Domestic sales of cars 1.3 -3.7 -4.0 -20.2 -3.1 4.3 13.2 7.5 1.6

Sources: Credit Finance Association of Korea, Ministry of Knowledge Economy, Korea National Oil Corporation, Korea Automobile Manufacturers Association Ministry of Strategy and Finance (for January data)

Department store and discount store sales (current value)

Source: Ministry of Knowledge Economy (monthly retail sales)

40 30 20 10

0 -10 -20 -30

(y-o-y, %)

Domestic sales of cars

Source: Korea Automobile Manufacturers Association (monthly automobile industry trend)

180

160

140

120

100

80

60

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

(thousand) (y-o-y, %)

2001. 1 2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1 2010. 1 2011. 1 2012. 1 2013. 1

Domestic car sales growth (right) Domestic car sales (left)

Consumption conditions were generally positive as consumer sentiment improved amid stable inflation.

Employment growth edged down due to a base effect, but consumption conditions continued to be positive as inflation remained stable.

Consumer prices ^{(y-o-y, %)}

2.5 (Apr 2012) [ 2.5 (May) [ 2.2 (Jun) [ 1.5 (Jul) [ 1.2 (Aug) [ 2.0 (Sep) [ 2.1 (Oct) [ 1.6 (Nov) [ 1.4 (Dec) [ 1.5 (Jan 2013)

Employment growth (y-o-y, thousand)

472 (May 2012) [ 365 (Jun) [ 470 (Jul) [ 364 (Aug) [ 685 (Sep) [ 396 (Oct) [ 353 (Nov) [ 277 (Dec)

Consumer confidence improved to a certain extent in January as the consumer sentiment index reached 102 and exceeded its baseline.

Consumer sentiment index (CSI, base=100)

102 (Mar 2012) [ 106 (Apr) [ 106 (May) [ 101 (Jun) [ 100 (Jul) [ 101 (Aug) [ 99 (Sep) [ 100 (Oct) [ 100 (Nov) [ 99 (Dec) [ (Jan 2013) 102

Facility investment (advanced estimates of GDP) decreased 2.8 percent quarter-on- quarter and 5.1 percent year-on-year in the fourth quarter of 2012.

(Percentage change from previous quarter)

2010 2011¹ 2012¹

Annual Annual Q3 Q4 Annual Q1 Q2 Q3 Q4

Facility investment² 25.7 3.7 -1.8 -4.3 -1.8 10.3 -7.0 -4.8 -2.8

(y-o-y) - - 1.2 -3.3 - 8.6 -3.5 -6.5 -5.1

- Machinery 31.2 4.1 -2.5 -2.5 - 11.4 -7.5 -5.9 -

- Transportation equipment 8.3 1.9 0.9 -11.2 - 6.1 -4.6 -0.6 -

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

3.

Facility investment

Consumer sentiment index

Source: The Bank of Korea

130

120

110

100

90

80

70

(base=100)

2001. Q1 2004. Q1 2007. Q1 2009. 1 2010. 1 2011. 1 2012. 1 2013. 1

The facility investment index in December rose 9.9 percent month-on-month as both machinery and transportation equipment investments were strong. The index fell 6.3 percent year-on-year.

(Percentage change from previous quarter)

2010 2011 2012¹

Annual Annual Q3 Q4 Annual¹ Q3 Q4¹ Oct Nov¹ Dec¹

Facility investment index 24.2 0.7 -1.5 -5.0 -1.1 -9.3 -1.1 -2.8 -0.7 9.9

(y-o-y) - - -3.1 -4.7 - -7.1 -5.6 -0.6 -9.3 -6.3

- Machinery 29.4 1.7 -2.2 -3.1 -1.3 -8.6 -2.8 -2.2 0.0 6.1

- Transportation equipment 4.5 -4.1 1.6 -12.9 0.5 -13.3 8.2 -5.6 -2.9 27.8

1. Preliminary Source: Statistics Korea

Facility investment

Source: The Bank of Korea (national accounts)

40

30 20 10 0 -10 -20

-30

(%)

2001. Q1 2002. Q1 2003. Q1 2004. Q1 2005. Q1 2006. Q1 2007. Q1 2008. Q1 2009. Q1 2010. Q1 2011. Q1 2012. Q1

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

Facility investment by type

Source: The Bank of Korea (national accounts)

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

(y-o-y, %)

2001. 1

Transportation equipment Machinery

2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1 2010. 1 2011. 1 2012. 1

(Percentage change from previous quarter)

2010 2011 2012¹

Annual Annual Q3 Q4 Annual¹ Q3 Q4¹ Oct Nov¹ Dec¹

Domestic machinery orders 8.3 11.0 3.4 11.5 -12.3 -8.9 -18.7 -19.9 -25.8 -9.9

(q-o-q, m-o-m) - - -5.4 8.8 - 2.2 0.1 -13.3 11.2 10.6

- Public -37.7 11.2 6.1 -3.1 -10.1 25.0 -50.9 -71.3 -77.2 32.4

- Private 18.3 11.0 3.2 14.7 -12.5 -11.5 -12.8 -10.7 -12.6 -14.9

Machinery imports 40.4 7.1 9.7 1.4 -3.0 -12.2 -8.3 1.6 -17.1 -7.6

Average manufacturing operation ratio 80.9 79.9 79.6 78.0 77.8 75.3 77.3 75.9 77.5 78.4 Facility investment adjustment pressure² 8.9 1.6 1.0 0.8 -1.2 -2.9 -0.8 -2.8 1.2 -1.0 1. Preliminary

2. Production growth rate minus production capacity growth rate in the manufacturing sector (%p) Sources: Statistics Korea, Korea International Trade Association

Machinery orders and machinery imports

Source: Korea International Trade Association (KITA), Statistics Korea

10 9 8 7 6 5 4 3 2

70 60 50 40 30 20 10 0 -10 -20 -30 -40 -50

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

2001. Q1 2002. Q1 2003. Q1 2004. Q1 2005. Q1 2006. Q1 2007. Q1 2008. Q1 2009. Q1 2010. Q1 2011. Q1 2012. Q1

Machinery orders (left) Machinery imports (right)

Although the average manufacturing operation ratio increased and corporate investment sentiment slightly improved, further developments need to be monitored due to sluggish leading indicators such as machinery orders.

Business survey index for manufacturing sector (Bank of Korea)

90 (May 2012) [ 85 (Jun) [ 81 (Jul) [ 70 (Aug) [ 75 (Sep) [ 72 (Oct) [ 70 (Nov) [ 67 (Dec) [ 70 (Jan 2013) [ 72 (Feb)

Construction investment (preliminary GDP) in the fourth quarter of 2012 decreased 1.3 percent quarter-on-quarter, and 4.1 percent year-on-year.

(Percentage change from previous quarter)

2010 2011¹ 2012¹

Annual Annual Q3 Q4 Annual Q1 Q2 Q3 Q4

Construction investment² -3.7 -5.0 -0.5 0.1 -1.5 -1.2 -0.4 0.1 -1.3

(y-o-y) - - -4.0 -2.1 - 1.5 -2.1 -0.2 -4.1

- Building construction -1.6 -4.1 -1.1 -0.6 - 3.8 -3.6 -2.0 -

- Civil engineering works -6.2 -6.0 0.3 1.0 - -7.7 4.4 2.8 -

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

The value of construction completed (constant) in December increased 5.8 percent month-on-month thanks to strong construction and civil engineering works, but decreased 11.3 percent year-on-year.

(Percentage change from previous quarter)

2010 2011 2012¹

Annual Annual Q3 Q4 Annual¹ Q3 Q4¹ Oct Nov¹ Dec¹

Construction completed (constant) -3.3 -6.7 -4.3 5.7 -7.2 1.5 2.6 -1.8 2.2 5.8

(y-o-y) - - -8.4 -0.5 - -4.4 -8.7 -11.7 -2.0 -11.3

- Building construction -7.0 -8.4 -3.7 4.9 -8.3 1.2 3.5 -0.1 -1.7 9.7

- Civil engineering works 2.2 -4.5 -5.1 6.6 -5.7 1.7 1.6 -3.7 6.9 1.2

1. Preliminary Source: Statistics Korea

Construction investment

Source: The Bank of Korea (national accounts)

20 15 10

5 0 -5 -10 -15

(%)

2001. Q1 2002. Q1 2003. Q1 2004. Q1 2005. Q1 2006. Q1 2007. Q1 2008. Q1 2009. Q1 2010. Q1 2011. Q1 2012. Q1

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

4.

Construction

investment

(Percentage change from same period in previous year)

2010 2011 2012¹

Annual Annual Q3 Q4 Annual¹ Q3 Q4¹ Oct Nov¹ Dec¹ Construction orders (current value) -17.7 4.0 1.5 22.4 -6.5 -10.4 -31.4 -22.7 -17.4 -42.5

(q-o-q, m-o-m) - - 3.3 -1.9 - -9.6 -18.2 -4.5 -2.3 -22.4

- Building construction -8.9 10.9 9.8 40.6 -5.9 -2.8 -26.3 -15.7 -16.7 -37.1

- Civil engineering works -28.3 -6.6 -11.0 -1.1 -7.5 -24.4 -40.8 -37.6 -18.8 -51.1

Building permit area 19.3 9.9 58.7 -14.8 -0.5 -7.3 -2.3 -21.7 3.1 9.2

1. Preliminary

Sources: Statistics Korea, Ministry of Land, Transport and Maritime Affairs

Construction investment by type

Source: The Bank of Korea (national accounts)

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

(y-o-y, %)

2001. 1

Building construction Residential buildings Civil engineering works

2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1 2010. 1 2011. 1 2012. 1

Construction investment is expected to continue to suffer due to the struggling housing market and a decrease in construction orders.

Leading indicators in December were mixed as construction orders continued to decline while building permit area increased for two consecutive months. Unsold new houses mildly decreased month-on-month.

Unsold houses (thousand)

61 (Apr 2012) [ 62 (May) [ 62 (Jun) [ 67 (Jul) [ 70 (Aug) [ 72 (Sep) [ 73 (Oct) [ 76 (Nov) [ 75 (Dec)

Housing transactions, which picked up in December thanks to temporary acquisition tax cuts, may turn negative once the tax cut ends.

Housing transaction growth (y-o-y, %)

-29.3 (Jun 2012) [ -22.1 (Jul) [ -34.6 (Aug) [ -44.3 (Sep) [ -15.2 (Oct) [ -8.4 (Nov) [ 2.4 (Dec)

Leading indicators of construction investment

Source: Statistics Korea (construction orders)

Ministry of Land, Transport and Maritime Affairs (building construction permit area)

340 290 240 190 140 90 40 -10 -60 -110

(y-o-y, %)

2001. 1

Construction orders Building permit area

2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1 2010. 1 2011. 1 2012. 1

5.

Exports and imports

Exports in January increased 11.8 percent (preliminary) year-on-year to US$46.09 billion.

Exports posted double-digit growth rates for the first time in 11 months thanks to strong exports of major items and two extra working days due to the timing of this year’s Lunar New Year holiday.

Working days (the number of days)

22 (Jan 2012) [ 24 (Jan 2013) (While the Lunar New Year holiday fell in January last year, it was in February this year.)

Export growth in January was led by a strong performance from most major export items excluding vessels.

Export growth by item (y-o-y, %)

32.8 (mobile phones), 6.4 (semiconductors), 16.4 (LCDs), 11.7 (petroleum products), 24.3 (automobiles), 20.8 (automobile parts), -8.0 (steel), -19.9 (vessels)

Adjusting for days worked, average daily exports stood at US$1.92 billion, up 2.5 percent or US$1.87 billion year-on-year, posting growth for the third consecutive month since November.

Average daily export growth by month ^{(y-o-y, %)}

-6.0 (Aug 2012) [ -2.4 (Sep) [-1.2 (Oct) [ 3.9 (Nov) [ 7.5 (Dec) [ 2.5 (Jan 2013)

(US$ billion)

2011 2012 2013

Annual Annual Q1 Q2 Q3 Q4 Nov Dec Jan¹

Exports 555.21 548.17 134.86 140.18 133.13 139.91 47.78 45.03 46.09

(y-o-y, %) 19.0 -1.3 3.0 -1.7 -5.7 -0.3 3.8 -5.7 11.8

Average daily exports 2.01 2.00 1.97 2.09 1.90 2.04 1.99 2.09 1.92

Imports 524.41 519.54 133.62 130.45 125.62 129.89 43.40 43.11 45.21

(y-o-y, %) 23.3 -0.9 7.8 -2.8 -6.9 -1.0 0.9 -5.2 3.9

Average daily imports 1.91 1.90 1.95 1.96 1.79 1.89 1.81 2.00 1.88

1. Preliminary

Source: Korea Customs Service

Imports in January rose 3.9 percent (preliminary) year-on-year to US $45.21 billion.

Imports increased despite a fall in crude oil imports, as commodities imports edged up due to a rise in petroleum product imports, with capital and consumer goods imports also picking up.

Import growth by category (Jan 1- 30, preliminary, y-o-y, %) 2.1 (commodities), 4.8 (capital goods), 13.0 (consumer goods)

The trade balance (preliminary) in January posted a surplus of US$0.87 billion.

(US$ billion)

2011 2012 2013

Annual Annual Q1 Q2 Q3 Q4 Nov Dec Jan¹

Trade balance 30.80 28.63 1.23 9.73 7.51 10.02 4.38 1.92 0.87

1. Preliminary

Source: Korea Customs Service

Average daily exports (US$ billion)

1.87 (Jan 2012), 1.97 (Q1), 2.10 (Q2), 1.90 (Q3), 1.99 (Nov), 2.09 (Dec), 1.92 (Jan 2013) January is not usually a good month for exports because it follows the year-end holiday shopping season.

Exports to China rose for the fifth straight month, and exports to the US and ASEAN countries increased. However, exports to the EU slightly contracted.

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

16.6 (China), 17.0 (ASEAN countries), 21.2 (US), 6.6 (Japan), -3.2 (EU)

Exports and imports

Source: Korea Customs Service, Ministry of Knowledge Economy (export and import trend)

60

50 40 30 20 10 0 -10

(US$ billion)

2001. 1 2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1

Exports Imports

2010. 1 2011. 1 2012. 1 2013. 1

Trade balance

Exports by type

Source: Korea Customs Service, Ministry of Knowledge Economy (export and import trend)

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

(y-o-y, %)

2001. 1

Export growth rate Automobiles Semiconductors Steel

2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1 2010. 1 2011. 1 2012. 1 2013. 1

Imports by type

Source: Korea Customs Service, Ministry of Knowledge Economy (export and import trend)

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

(y-o-y, %)

2001.1

Import growth rate Commodities Capital goods

2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1 2010. 1 2011. 1 2012. 1 2013. 1

Mining and manufacturing production in December increased 1.0 percent month- on-month backed by strong growth in audio-visual communications equipment, automobiles and semiconductors & parts. On a yearly basis, output rose 0.8 percent.

Compared to the previous month, production of audio-visual communications equipment (up 20.4%), automobiles (up 2.3%) and semiconductors & parts (up 1.4%) rose, while production of clothing & fur (down 11.1%), electric equipment (down 2.9%) and machinery (down 1.6%) fell.

Compared to a year ago, production of semiconductors & parts (up 17.1%), audio- visual communications equipment (up 9.8%) and chemical products (up 3.4%) increased, while production of mechanical equipment (down 15.4%), nonmetallic minerals (down 12.6%) and automobiles (down 6.2%) went down.

The manufacturing inventory-shipment ratio decreased by 3.7 percentage points month-on-month as inventories fell 0.9 percent and shipments rose 2.4 percent.

Inventories of refined petroleum products (up 26.1%), clothing & fur (up 5.9%) and chemical products (up 2.6%) rose month-on-month, while audio-visual communications equipment (down 8.9%), mechanical equipment (down 6.0%), and semiconductors & parts (down 2.9%) declined.

Shipments of semiconductors & parts (up 1.9%), audio-visual communications equipment (up 26.0%) and mechanical equipment (up 5.9%) climbed, while inventories of nonmetallic minerals (down 6.2%), clothing & fur (down 7.7%) and groceries (down 1.3%) slipped.

The average operation ratio of the manufacturing sector rose by 0.9 percentage points month-on-month to 78.4 percent.

(Percentage change from previous quarter or month)

2011 2012¹

Annual Q4 Dec Annual¹ Q3 Q4¹ Oct Nov¹ Dec¹

Mining and manufacturing activity²

Mining production (q-o-q, m-o-m) - -0.1 -0.6 - -2.0 3.0 0.7 2.6 1.0

(y-o-y) 6.9 5.0 2.9 1.7 0.3 1.1 -0.6 3.2 0.8

Manufacturing production (q-o-q, m-o-m) - 0.1 -0.9 - -2.3 3.5 0.8 2.8 1.4

(y-o-y) 7.0 5.3 2.9 1.8 0.4 1.2 -0.7 3.1 1.2

Shipment 6.7 -0.3 0.0 1.3 -2.6 1.9 -1.1 1.3 2.4

- Domestic demand 3.3 -2.0 -0.6 -1.1 -1.7 0.7 0.5 0.4 2.6

- Exports 10.8 1.5 0.6 3.9 -3.6 3.1 -2.9 2.2 2.2

Inventory³ 20.8 9.3 2.6 0.2 1.7 3.9 2.3 2.5 -0.9

Manufacturing activity

Average operation ratio (%) 79.9 78.0 76.9 77.8 75.3 77.3 75.9 77.5 78.4

Production capacity⁴ 5.4 4.3 4.2 3.3 3.2 2.8 2.1 1.9 2.2

1. Preliminary

2. Including mining, manufacturing, electricity, and gas industry 3. End-period

4. Percentage change from same period in previous year Source: Statistics Korea

6.

Mining and

manufacturing

production

Mining and manufacturing production may decrease due to inventory adjustment and a high base effect, with major exports, including IT products and automobiles, posting slower growth month-on-month in terms of days worked.

Average daily export growth (y-o-y, %)

-6.0 (Aug 2012) [ -2.3 (Sep) [ -1.2 (Oct) [ 3.8 (Nov) [ 7.5 (Dec) [ 2.5 (Jan 2013)

Industrial production

Source: Statistics Korea (industrial activity trend)

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

(%)

2001. 1 2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1

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

2010. 1 2011. 1 2012. 1

Shipment and inventory

Source: Statistics Korea (industrial activity trend)

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

(m-o-m, %)

Shipment growth Inventory growth

2001. 1 2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1 2010. 1 2011. 1 2012. 1

Average manufacturing operation ratio

Source: Statistics Korea (industrial activity trend)

100

90

80

70]

60

50

( %)

2001. 1 2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1 2010. 1 2011. 1 2012. 1

Service activity in December rose 0.1 percent month-on-month and 1.0 percent year-on-year as growth in transportation services and real estate & renting offset weaknesses in wholesale & retail.

Wholesale & retail declined 0.2 percent month-on-month due to sluggish retail sales of semi-durable and non-durable goods.

Transportation services rose 1.7 percent, as export growth led to increased cargo transportation.

Average daily export growth by month (y-o-y, %)

-6.0 (Aug 2012) [ -2.3 (Sep) [ -1.2 (Oct) [ 3.8 (Nov) [ 7.5 (Dec) Growth of water freight transportation (y-o-y, %)

-4.5 (Aug 2012) [ 6.6 (Sep) [ -1.2 (Oct) [ 0.1 (Nov) [ 2.0 (Dec)

Hotels & restaurants weakened for the fifth straight month, declining 0.3 percent due to poor consumer confidence.

Real estate & renting rose 1.2 percent from the previous month, as housing sales increased before the property acquisition tax cut ended on December 31, 2012.

Housing transactions rose from 72,000 in November to 108,000 in December.

Financial & insurance services and educational services showed a slight improvement from the previous month’s slump, growing 0.3 percent and 1.8

7.

Service sector

activity

(Percentage change from previous period)

Weight 2011 2012

Annual Q1 Q2 Q3 Q4 Annual Q1 Q2 Q3 Q4¹ Nov¹ Dec¹

Service activity index 100.0 3.3 1.6 0.2 1.3 -0.5 1.7 1.0 0.1 0.9 -0.2 0.8 0.1

- Wholesale & retail 21.8 3.8 1.4 1.4 0.7 -0.7 0.9 0.1 0.6 0.7 -0.2 2.2 -0.2

- Transportation services 9.0 3.9 2.6 -1.6 1.0 -1.0 0.9 1.5 -0.2 0.2 1.0 1.7 1.7

- Hotels & restaurants 7.7 -0.5 -0.4 1.0 -0.3 -1.5 -0.1 -0.2 2.5 -0.5 -1.6 -0.5 -0.3 - Publishing & communications services 8.4 4.4 1.1 0.5 2.8 0.3 3.3 1.0 0.5 0.9 0.0 3.7 -1.4 - Financial & insurance services 15.3 7.3 3.0 0.1 2.7 0.1 2.8 1.4 -1.8 2.8 0.2 -0.4 0.3 - Real estate & renting 6.3 -10.2 3.3 -2.2 -0.3 -6.4 -3.6 -0.2 3.1 1.1 -1.2 0.3 1.2 - Professional, scientific & technical services 4.8 0.3 -1.5 2.0 1.0 1.4 2.9 1.8 -0.9 1.4 -2.0 1.8 -0.8

- Business services 2.9 4.3 0.8 0.9 0.2 0.4 2.5 1.7 1.1 -0.8 -0.4 -0.5 1.1

- Educational services 10.8 2.4 0.2 -0.9 1.7 0.4 1.1 1.2 -1.3 -0.1 0.1 -0.8 1.8

- Healthcare & social welfare services 6.0 6.3 3.3 0.6 1.4 1.6 5.9 1.7 2.4 0.6 0.0 -0.1 0.3 - Entertainment, cultural & sports services 2.9 2.3 1.1 0.0 0.7 0.1 2.4 4.3 -2.7 -1.1 0.4 -0.1 -6.8 - Membership organizations 3.8 1.1 -0.3 1.1 -0.3 -2.1 -1.0 -0.2 0.4 0.7 0.3 -0.1 -0.5 - Sewerage & waste management 0.4 0.0 0.1 -0.5 0.2 3.1 6.4 1.0 3.8 -1.7 5.1 -2.7 4.1 1. Preliminary

Source: Statistics Korea

Service industry

Source: Statistics Korea (service industry activity trend)

20

15

10

5

0

-5

-10

(%)

2001. 1 2002. 1 2003. 1 2004. 1 2005. 1 2006. 1 2007. 1 2008. 1 2009. 1

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

2010. 1 2011. 1 2012. 1