August 7, 2009
1. This statement provides additional information that has become available since the circulation of the staff report. The information does not change the thrust of the staff appraisal.
2. Recent data point to a rebound in economic activity consistent with staff projections. Real GDP grew by 2.3 percent (q/q, sa) in the second quarter driven by a pickup in consumption and exports. Consumption was supported by fiscal stimulus measures (including PIT cuts, temporary tax relief on car sales and targeted cash transfers) and a recovery in consumer confidence. Exports continue to benefit from the undervalued exchange rate, global restocking, and fiscal measures abroad that have supported the sale of Korean exports such as motor vehicles and flat screen TVs.
3. July trade data confirm that the export recovery continues, albeit at a slower pace than in June. Export growth was 4 percent m/m sa, slower than the 15.9 percent m/m, sa in June and down by 20.1 percent y/y. Imports also showed signs of recovery, recording positive growth for a second consecutive month (3.2 percent, m/m, sa), mainly due to an up-tick in capital goods imports, bringing the y/y decline to 35.8 percent.
4. Official reserves increased by $5.8 billion to $237.5 billion in July. The increase is attributed to valuation gains of non-dollar denominated reserves, interest and dividend income, as well as the unwinding of outstanding dollar swaps and loans.
5. Inflation continued to decline in July. CPI inflation dropped to 1.6 percent (y/y) from 2.0 percent in June and core inflation receded to 3.2 percent (y/y) from 3.5 percent, against the background of the still substantial output gap.