Economic and Industrial Outlook for the Second Half of 2012

Korean economy has recently exhibited signs of a slowdown as the Euro debt crisis and the impact of the economic slowdown in advanced countries spreads to exports. The manner in which the Euro debt crisis unfolds can be regarded as the most significant variable in the economic outlook for 2012. Regarding the uncertainty surrounding the direction in which this crisis will develop in the future, the following outlook is based on “the muddling through scenario” in which efforts to settle the crisis within the Euro zone can be expected to proceed without any additional large-scale turns for the worse. However, even under this scenario, the global economy is expected to be sluggish in 2012 in the course of the overall economic slowdown in the advanced countries and the decline of China’s economic growth amid the ongoing Euro debt crisis. The slowdown of the global economy is expected to result in oil prices remaining at last year’s levels. Meanwhile, a slight rise in the won/dollar exchange rate can also be anticipated.The impact of the slowdown of the global economy is expected to result in the Korean economy experiencing limited growth of 3.2% in 2012. Meanwhile, the improvement in terms-of-trade occasioned by the stabilization of oil prices will result in domestic demand keeping its upward trend at a ratio similar to the previous year. However, economic growth will be slower than during the previous year because of the decline in export growth. The international instability stemming from the debt crisis in the Euro zone can be considered to be the biggest downward risk. In the domestic side, the household debt burden and the sluggishness of the construction sector, as well as the impact thereof, are expected to be the main downward risk factors.While domestic demand will improve somewhat, exports of the 10 major industries are expected to drop to some extent during the second half of 2012 due to a contraction of global demand triggered by the debt crisis in Europe and the increased competition in the major export markets. But, amid the general downturn in the market, the automobile and general machinery industries are expected to show some improvements in their competitiveness to keep their leading role in export markets. The IT industries are expected to show signs of recovery as the drop in prices in the semiconductor and display sectors begins to moderate