NABO Economic Trends & Issues (Issue No. 52)
February 28, 2017
Economic Policy Analysis Division of the Economic Analysis Office
I. Economic Trends
Although the Korean economy recently appears to have recorded an increase in exports, consumption seems to be weakening due to the continued decline in indices such as consumer confidence and manufacturing sector employment.
Ⅱ. Characteristics of Korean Economic Growth in 2016
In 2016, the Korean economy recorded a 2.7% real growth rate. The characteristics of the Korean economy in 2016 are that it has become more dependent—in terms of economic growth—on government spending and real estate boosting policies. The difficulties in pursuing export-oriented growth have become clearer as investments in the future have shrunk amid the continued slowdown in growth for backbone manufacturing industries. A rebalancing between the government and the private sector, exports and domestic demand as well as current and future investments will be necessary to build a foundation for growth within the Korean economy.
Ⅲ. Recent Corporate Debt in China and Potential Risk Factors
Affected by the proactive investment promotion policy pursued by the government in response to the economic slowdown, Chinese corporate debt has increased steeply since the financial crisis.
While there is the potential for financial instability and a negative impact on government finances as corporate debts, especially those of municipal state-owned enterprises (SOEs), face higher risks, fiscal indicators show that the situation can be managed by the government. In the future, efforts such as the Chinese government’s restructuring of SOEs and the creation of a market-led credit rating system are expected to become key factors in reducing the potential risks of increased corporate debt.
Ⅳ. Analysis of the Factors behind the Recent Increase of Foreign Exchange Rate Volatility
The Won-Dollar exchange rate showed large fluctuations with increased volatility in 2016. The increased F/X volatility seems to have been caused by changes in the macro-economic environment of Korea and the international community at large, such as widened interest rate gaps and higher trade barriers, as well as the impact of political and economic events that occurred throughout the year. However, there are some areas that cannot be explained by these factors. Therefore, further study is necessary on whether the Korean economy and the global economy are in the midst of structural changes that involve an increase in exchange rate volatility.