Perspective on South Korea

For Korea, the past 15 years has been a story of economic boom, financial crisis and heavy restructuring. Being the poster child for reform following the Asian crisis allowed Korea to emerge stronger and more resilient. In the process, Korea has reestablished itself rapidly as a key economic powerhouse in Asia and in a global context, testament to swift policy responses and a robust institutional framework.

South Korea's Economy in Context

Korea is the 10th largest economy in the world and 3rd largest in East Asia, behind only Japan and China. As an international trader, Korea now ranks 12th globally, with China overtaking the US last year as Korea's key bilateral trader partner. In line with regional trends, Korea has been quick to re-orientate trade policy towards Asia's demand and supply dynamics and maximise efficiency gains. Korea can boast to be world leaders across a number of sectors, in particular areas such as semiconductors, mobile telephony and, more recently, automobiles. Moreover, Korea is home to the world's 3 largest shipbuilders, accounting for almost half of global orders.

Clearly, Korean industry is well-positioned to benefit from both regional and international growth. Global investors have also been drawn to the lack of stringent capital controls that can be found in certain parts of Asia. As a result, foreign investment, both equity and direct, continues to be a key driver for growth. This should be seen as a direct reflection of the growing importance of Korea, regionally and globally, and the growth opportunities on offer.

Future Challenges and Opportunities

Yet, there are challenges ahead too. The credit card boom of 2002/03 has left a trail of consumer debt and fragile confidence that is only just beginning to show signs of easing. Total household debt accounted for just over 60% of nominal GDP at the end of 2004 and is likely to keep any recovery in consumer spending moderate in the short term. Government spending in key areas such as construction and infrastructure will help to support demand whilst at the same time making the needed investment to upgrade the economy. Deregulation of the services sector, an area that has been heavily regulated, will also encourage further investment that promotes competitiveness and productivity gains.

Korea's success in binding broad-based structural reforms with continued strength in technological innovation underscores the dynamism of an economy more resilient since emerging from the Asian crisis. As an international bank with global reach and local expertise, we hope to help you make the most of new opportunities.



Mike Moran, author of this report, is the Regional Economist at Standard Chartered covering South Korea. Based in Hong Kong, Mike writes and travels extensively throughout the region with key focus on economic, political and financial trends.