Korea's economy

Click for bigger graph

Korea was one of the OECD countries most severely affected by the global crisis, even though its financial sector had been relatively healthy.

Indeed, the crisis has been quite a blow to an economy that had become one of the developed world's star performers in recent years, with the financial market volatility and the steep drop in the exchange rate reminiscent of the 1998 Asian crisis.

The exchange rate also depreciated by 30% in trade-weighted terms between July 2008 and the end of February 2009, reflecting concerns about the size of Korea's foreign debt as well as an outflow of foreign investment. This led to a sizeable drop in equity prices and reduced household wealth. Despite the weak exchange rate, exports plunged by more than 30% at an annual rate in the final quarter of 2008, causing a sharp contraction in output.

But the situation is improving. The Korean economy was one of the first among OECD countries to stabilise, recording slightly positive growth in the first quarter of 2009 thanks to a number of factors. First, the depreciation of the won strengthened Korea's international competitiveness by making exports cheaper, helping it gain market share even in still-shrinking markets. Second, the Bank of Korea had acted swiftly by cutting its policy interest rate from 5.25% in August 2008 to a record low of 2% in February 2009, and this bolstered lending to small firms and households. Third, the fiscal stimulus that the government introduced from the second half of 2008 began to take effect. Both government spending on goods and services and construction investment, led by public infrastructure projects, recorded double-digit increases in the first quarter of 2009. In April 2009, a fresh boost came from a supplementary budget amounting to 1.7% of GDP, which provided support for the unemployed, low-income households and small and mediumsized enterprises.

Beyond fiscal and monetary stimulus, the authorities have implemented a number of additional measures to limit the impact of the global financial crisis on Korea. In late 2008, they arranged currency swap arrangements with major countries and guaranteed domestic banks' foreign debt up to $100 billion, a move that helped ease concerns about Korea's external debt. The won has rebounded since March, although it remains well below its July 2008 level.

The government has also moved pre-emptively to limit any negative effect on the financial system from the economic downturn. It has injected capital in seven banks and established a 40 trillion won (4% of GDP) fund to purchase non-performing loans.

All of these initiatives have already paid off, both in a stabilisation of output, and a strong bounce-back in business and consumer confidence, which now exceeds its September 2008 pre-crisis level. Financial-market conditions have also settled, thanks to a revival in corporate bond issuance and a rally in equity prices.

In sum, the Korean economy seems poised for recovery, but there are negative factors to deal with. There is still the impact from shrinking employment, for instance. Also, exports account for about half of the Korean economy. This means the outlook depends crucially on world trade, which is projected to recover only gradually.

For more detail on Korea's economic performance, contact Randall.Jones@oecd.org

For latest economic projections on Korea, see OECD Economic Outlook No 85, June 2009, at www.oecd.org/eco/economic_outlook.

See also, www.oecd.org/korea

©OECD Observer No. 273, June 2009




Economic data

GDP growth: +0.6% Q2 2018 year-on-year
Consumer price inflation: 2.9% Sept 2018 annual
Trade: +2.7% exp, +3.0% imp, Q4 2017
Unemployment: 5.2% Sept 2018
Last update: 13 Nov 2018

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Globalisation will continue and get stronger, and how to harness it is the great challenge, says OECD Secretary-General Gurría on Bloomberg TV. Watch the interview here.
  • OECD Secretary-General Angel Gurría with UN Secretary-General António Guterres at the 73rd Session of the UN General Assembly, in New York City.
  • The new OECD Observer Crossword, with Myles Mellor. Try it online!
  • Watch the webcast of the final press conference of the OECD annual ministerial meeting 2018.
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2018