Economic Trends: 1. Real Economy 2. Financial and Foreign Exchange Markets

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Economic Trends

1. Real Economy 3

2. Financial and Foreign Exchange Markets 17


1. Real Economy1) 3

Ⅰ. Economic Trends
A. Global Economy

In 2022, the growth of the global econo-


Figure Ⅰ- 1. Changes in Global Economic Growth
my heavily decelerated in accordance with

1. Real Economy
simultaneous sluggishness in the economies (%) (%)
8 8
of major countries. By country, in the U.S.
and the euro area, the economic slowdown 6 6

was mainly attributed to price inflation and 4 4

the subsequent interest rate hikes. In Japan 2 2

and China, COVID-19 quarantine measures 0 0

were a leading factor behind their economic -2 -2

downturn. The recovery of global trade was -4 -4

also weakened, affected by the global eco- -6 -6

nomic slowdown. Meanwhile, amid growing -8 -8


2013 2016 2019 2022e
volatility due to the Russia-Ukraine war, the
Sources: IMF
global economic slowdown, and the OPEC+
decision to cut oil production, international
oil prices fluctuated at a generally higher level
compared to 2021. Prices grew at a consider-
Figure Ⅰ- 2. G
 rowth Rate of Global Economy and
ably faster rate, affected by a surge in global Major Countries
commodity prices.
2020 2021 2022

(%) (%)
Slowdown in Global Economic Growth 10 10

6 6
In 2022, the growth of the global economy
stagnated significantly in line with the simul-
2 2
taneous economic downturn of major coun-
tries, which led to the estimation that it would -2 -2

remain in the lower to mid-3 percent range. 2)

-6 -6
This was largely driven by the prolonged Rus-
sia-Ukraine war, China’s lockdown, tightened
-10 -10
monetary policy stances of major economies, World U.S. Euro Area Japan China India ASEAN-5

and energy supply disruptions. Sources: IMF, statistics agencies of individual countries

1) A detailed explanation of economic trends during 2022 can be found in “I. Monetary Policy Operating Conditions” of
the Monetary Policy Report (Quarterly) published by the Bank of Korea, such as the March 2022 Issue, June 2022
Issue, September 2022 Issue, December 2022 Issue, and March 2023 Issue.
2) The growth rate of the global economy in 2022 estimated by major international organizations: 3.4 percent by the
IMF, 3.2 percent by the OECD·U.N., and 3.1 percent by the World Bank.
By countr y, the U.S. saw its economic
4
growth slow due to rising inflationary pres-
sures and the subsequent rapid policy rate
rises. In the euro area, amid the prolonged
Russia-Ukraine war, the economy continued
to show a downward trend owing to high
inflation. In the case of Japan, the economic
recovery was sluggish, affected by prolonged
quarantine measures in response to the
spread of COVID-19, as well as to the global
economic slowdown. Meanwhile, China ex-
perienced a sharp decline in economic growth
due to its continued zero-COVID policy and
extended slump in the real estate market.3) In-
dia sustained its favorable upward trend until
the third quarter, but later entered a gradual
economic slowdown owing to a worsening of
domestic and external conditions. In the ASE-
AN-5 countries, a favorable economic recov-
ery trend continued thanks to strong exports
and a rise in the number of foreign tourists
stemming from the resumption of cross-bor- Figure Ⅰ- 3. Changes in Global Trade Growth1)
der travel. Into the fourth quarter, however, it
(%) (%)
weakened due to a deterioration of domestic
20 20
and external conditions, such as the economic
15 15
slowdown in major countries and the slug-
10 10
gishness in the IT sector.
5 5

0 0
Downturn of Global Trade
-5 -5

-10 -10
The recovery of global trade weakened,
-15 -15
affected by the global economic slowdown.4)
Entering the second half of the year, trade in -20 -20
2013 2016 2019 2022e
goods saw its growth trend slow, influenced
Note: 1) Based on trade of goods and services.
by global supply chain disruptions and weak- Source: IMF

3) China’s real estate market has maintained a downward trend since the second half of 2021 due to the decline of the
country’s economic growth, strengthened restrictions, and deterioration in consumer sentiment. In particular, since
the China Evergrande Group issue (September 2021), market risks were expanded in relation to a rise in debt de-
faults among real estate development companies caused by the deterioration of financing conditions.
4) Global trade growth (based on IMF statistics): -7.8 percent in 2020 → +10.4 percent in 2021 → +5.4 percent in 2022.
ened economic trends in major countries.
5
Trade in services showed a modest upward
trend, centered on tourism services thanks to

Ⅰ. Economic Trends
the alleviation of entry restrictions.

Expansion of Volatility in International Oil


Figure Ⅰ- 4. International Oil Prices (monthly
Prices average)

1. Real Economy
Dubai Brent WTI
International oil prices (based on Dubai (dollar/barrel) (dollar/barrel)
crude oil prices) fluctuated at a generally 140 140

higher level compared to 2021, while exhib-


120 120
iting high volatility.5) During the first half of
the year, oil prices soared, affected by con-
100 100
cerns over disruptions in the crude oil supply
from Russia because of the Russia-Ukraine 80 80

war. During the second half of the year, pric-


60 60
es fell to around the 70-dollar range due to
heightened concerns over the global economic
40 40
downturn. 21.1 4 7 10 22.1 4 7 10

Sources: Bloomberg, Reuters

Significant Expansion of Global Inflation

Figure Ⅰ- 5. CPI Inflation in Major Countries


While global inflation sustained its high
upward trend throughout 2022, the uptrend U.S. Euro Area1)
U.K. Emerging Economies2)
began to weaken gradually in the second half
(YoY, %) (YoY, %)
of the year. In the first half of the year, the 12 12
growth margin in prices rose significantly
10 10
in both major advanced economies and in
emerging countries, affected by an increase 8 8

in global commodity prices, including oil


6 6
prices and food prices, resulting from the Rus-
sia-Ukraine war. After mid-2022, global infla- 4 4

tion began to slow in line with rising down- 2 2


ward pressure on the economy, in addition to
0 0
a considerable alleviation of supply-side infla- 21.1 4 7 10 22.1 4 7 10

tionary pressure due to a decline in interna- Notes: 1) Based on HICP.


tional oil prices. However, the time and pace 2) Average of Brazil, Russia, India, and South Africa.
Sources: Statistics agencies of individual countries

5) International oil prices (annually averaged per barrel based on Dubai crude oil prices): 42.2 dollars in 2020 → 69.0
dollars in 2021 → 97.0 dollars in 2022.
of the slowdown in inflation varied somewhat
6
depending on the country.

B. Domestic Economy

In 2022, although consumption contin-


ued to undergo a rapid recovery, the Korean
economy exhibited a lower growth rate than
the previous year because of slow growth in
exports. The employment status exhibited a
favorable trend with a significant increase in
the number of persons employed, centered on
the service sector. Consumer price inflation
recorded its highest figure since 1998 with ris-
ing pressure on both the demand and supply
sides, and the growth of core inflation also hit
a record high since 2008. In the meantime, the
current account saw its surplus considerably
narrow owing to a rise in imports resulting
from a surge in raw material prices.

Figure Ⅰ- 6. GDP Growth and Contributions by


(1) Economic Growth Expenditure Item (in real terms)1)

Final Consumption Gross Capital Formation


Slowdown in Domestic Economic Growth Exports Imports
GDP
(%, %p) (%, %p)
In 2022, the Korean economy witnessed 10 10

GDP growth of 2.6 percent in real terms,


8 8
which fell from 4.1 percent in 2021, as export
6 6
growth slowed and investment was also slug-
gish, affected by weakened global economic 4 4

growth and global supply disruptions, despite 2 2

a rise in consumption buoyed by the lifting of 0 0


social distancing measures.6) In particular, as
-2 -2
the global economic slowdown intensified in
-4 -4
the second half of the year, GDP growth stood 2013 2016 2019 2022p

at 2.2 percent year-on-year, lower than 3.0 Notes: 1) Preliminary figures for 2021 and 2022.
percent in the first half of the year. Source: Bank of Korea

6) GDP growth in real terms: -0.7 percent in 2020 → +4.1 percent in 2021 → +2.6 percent in 2022.
7) Change in final consumption expenditure in real terms: -2.2 percent in 2020 → +4.2 percent in 2021 → +4.3 percent
in 2022.
Examining the components of demand,
Figure Ⅰ- 7. C
 hanges in Consumption (in real
7
overall consumption (final consumption ex- terms)
penditure) rose by 4.3 percent year-on-year as

Ⅰ. Economic Trends
(%) (%)
the growth of private consumption expanded 8 Consumption (final consumption expenditure) 8
Private
despite a slowdown in the growth of govern- 6
Government
6

ment consumption.7) In spite of constraints, 4 4

including high inflation, interest rate hikes, 2 2

1. Real Economy
and a decrease in housing prices, private con- 0 0

sumption increased by 4.3 percent year-on- -2 -2

year, driven by a surge in services consump- -4 -4

tion due to an easing of quarantine measures, -6 -6


2013 2016 2019 2022p
in addition to improvements in income condi-
Source: Bank of Korea
tions, such as employment and wages.8) How-
ever, approaching the year-end, the upward Figure Ⅰ- 8. Changes in Fixed Investment (in real
trend slowed as pent-up demand weakened. terms)

Fixed investment (gross fixed capital for- (%)


Fixed Investment (gross fixed capital formation)
(%)
Construction Investment Facilities Investment
mation) diminished by 0.8 percent year-on- 20 20
Intellectual Property Products Investment
year with a decline in both construction and 15 15

facilities investment.9) Facilities investment de- 10 10


creased by 0.5 percent from the previous year,
5 5
influenced by disruptions in the supply of
0 0
automobile semiconductors and China’s lock-
down measures, although major IT companies -5 -5

continued to make large-scale investments. -10 -10


2013 2016 2019 2022p
Construction investment fell by 3.5 percent
Source: Bank of Korea
from the previous year because of disruptions
in the supply of construction materials re-
Figure Ⅰ- 9. Changes in Exports (in real terms)
sulting from the Russia-Ukraine war and the
sluggishness in the real estate market. Invest- (%) (%)
15 15
ment in intellectual property products rose by Exports of Goods Exports of Services
Gross Exports
4.7 percent as investments in both R&D and
10 10
other intellectual property products increased.
Exports of goods and services in real terms 5 5
recorded an increase of 3.2 percent year-on-
year, falling from 2021, as growth in major 0 0

countries slowed and the positive effects of the


pandemic that had been working in favor of -5 -5
2013 2016 2019 2022p
such exports (e.g., increased demand for non- Source: Bank of Korea

8) Change in disposable income in real terms based on “Household Income and Expenditure Survey” conducted by
Statistics Korea: +0.7 percent in 2021 → +2.0 percent in 2022. Number of persons newly employed: 816,000 per-
sons in 2022 (245,000 persons on average between 2015 and 2019).
9) Change in gross fixed capital formation in real terms: +3.5 percent in 2020 → +2.8 percent in 2021 → -0.8 percent in
2022.
face-to-face goods) weakened.10) Approaching
8
the second half of the year, the sluggishness
in exports of goods expanded, due to the
Figure Ⅰ- 10. G
 DP Growth and Contributions by
prolonged continuation of China’s lockdown Economic Activity (in real terms)
measures and the downturn in the IT sector.
Agriculture, Forestry & Fishing Manufacturing
The growth rate for exports of services was Electricity, Gas & Water Supply Construction

also significantly reduced because of a decel- Services Taxes Less Subsidies on Products
GDP
eration in global cargo volumes.
(%, %p) (%, %p)
Imports of goods and services in real terms 6 6

climbed 3.7 percent, lower than the previous


year, affected by the sluggishness in imports 4 4
of services due to a delay in the recovery of
demand for overseas travel, amid the weak-
2 2
ened growth in imports of goods because of
a decline in exports and a slump in domestic
0 0
demand.11)

-2 -2
Slowdown in Manufacturing Growth and In- 2013 2013 2019 2022p

crease in Services Growth Source: Bank of Korea

An overview of production activities across


various sectors (based on GDP) in 2022 shows
Table Ⅰ- 1. Growth Rate of Manufacturing by
that growth was sluggish in the manufactur- Sector
ing sector while it accelerated in the service (%)

sector, particularly in face-to-face services. 2017 2018 2019 2020 2021p 2022p

The construction industry shifted to a rise on Manufacturing 3.7 3.3 1.1 -1.1 6.9 1.4

the back of an increase in construction sites Chemicals


and Chemical 3.4 2.5 -0.9 -0.3 5.7 -3.7
that had accumulated over the past one to two Products
years. Basic Metals 2.9 -3.8 -0.9 -3.3 5.6 -5.7
The manufacturing sector registered its Fabricated
-0.3 -1.3 -1.8 -6.3 -3.5 -4.0
Metal Products
growth rate at 1.4 percent, far lower than 6.9
Computers,
percent in 2021, as growth slowed in the IT Electronics,
4.8 11.4 6.4 5.2 12.9 7.9
sector, while non-IT sectors also faced a slump and Optical
Products
in general. By sector, the margin of growth in Machinery and
22.5 0.7 -0.9 1.0 11.2 1.6
the computers, electronics, and optical devices Equipment
sector, including semiconductors, narrowed Transportation
-8.1 -2.3 1.9 -10.1 5.4 9.2
Equipment
due to the downturn in the global IT sector.
Source: Bank of Korea

10) Change in exports of goods and services in real terms: -1.7 percent in 2020 → +10.8 percent in 2021 → +3.2 per-
cent in 2022.
11) Change in imports of goods and services in real terms: -3.1 percent in 2020 → +10.1 percent in 2021 → +3.7 per-
cent in 2022.
Non-IT sectors, such as chemical products
Table Ⅰ- 2. Growth Rate of Services by Sector 9
and basic metals, were also mostly sluggish,
(%)
although the transportation equipment sector, 2017 2018 2019 2020 2021p 2022p

Ⅰ. Economic Trends
including automobiles, saw its growth expand Services 2.6 3.8 3.4 -0.8 3.8 4.2
thanks to the alleviation of global supply dis- Wholesale & Retail
Trade, Accommo-
ruptions. 1.8 2.9 3.5 -5.6 3.4 6.8
dation and Food
The service sector registered its growth Services

1. Real Economy
rate at 4.2 percent, higher than 3.8 percent in Transportation &
2.7 3.7 1.7 -17.3 5.3 9.2
Storage
2021. By sector, face-to-face sectors, such as
Finance & Insur-
wholesale & retail trade, food services & ac- 4.2 5.6 3.4 9.6 6.7 2.4
ance
commodations, and transportation & storage, Business Activities 2.0 3.8 2.6 0.1 2.8 2.5
witnessed their recovery expand considerably, Human Health &
6.4 8.2 9.8 1.1 5.2 6.2
Social Work
buoyed by the easing of quarantine measures.
Source: Bank of Korea
The business activities and the human health
& social work sectors also sustained a favor-
able uptrend.
The construction sector climbed by 0.3
percent year-on-year, led by the building
construction business. The growth rate for
the agriculture, forestry, and fishing sector
shifted to a decrease, registering minus 1.3
percent, while the electricity, gas, and water
supply sector continued its upward trend with
a growth rate of 1.9 percent.

(2) Employment and Wages


Figure Ⅰ- 11. Changes in Employment Figures by
Industry
Significant Increase in the Number of Per-
Manufacturing Services
sons Employed Construction Agriculture, Forestry & Fishing
Other Total

(10,000 persons) (10,000 persons)


Overall employment conditions sustained 100 100
a favorable trend, with the number of persons 81.6
80 80
employed surging by 816,000 due to the ef-
60 60
fects of the resumption of economic activities
36.9
following the pandemic. 40 31.6
30.1
40

By industry, the number of persons em- 20 20

ployed increased most in the service sector. 9.7


0 0
Although employment remained sluggish in
-20 -20
several face-to-face service sectors, such as -21.8

wholesale & retail trade, and personal ser- -40


2017 2018 2019 2020 2021 2022
-40

vices, those in human health & social work,


Source: Statistics Korea
and in food ser v ices & accommodations
Figure Ⅰ- 12. Changes in Employment Figures by
10
continued to grow at a rapid rate, buoyed by Employment Status
increased demand for care and social wel-
Wage Workers Non-Wage Workers
fare services and the return to normalcy. The Regular Employees Temporary Employees
Day Workers
number of persons employed in the manufac-
(10,000 persons) (10,000 persons)
turing sector shifted to a rise for the first time 100 100

in seven years, influenced by the improvement


80 6.8 80
in business conditions in the electrical and
60 60
electronic sectors, while the margin of growth
in the number of persons employed in the 40 74.9 40
5.1
construction sector narrowed. 20
35.7
42.1 20
26.5
By employment status, the number of wage 0
15.0
0
-5.2 -5.6 -10.8 -5.3
workers employed soared at a rapid rate, cen- -11.0
-20 -20
tered on regular workers, and that of non-
-40 -40
wage workers employed also shifted to a rise. 2017 2018 2019 2020 2021 2022

By age, the number of employees aged 30 to Source: Statistics Korea

59 and employees aged 60 or older rose sig-


nificantly, while the margin of growth among
those employed aged 15 to 29 slightly expand-
Figure Ⅰ- 13. C
 hanges in Employment Figures by
ed. Age
Boosted by a rise in the number of persons
15- to 29-Year-Olds 30- to 59-Year-olds
employed, the employment rate increased by 60-Year-Olds or Older Total

1.6 percentage points over the previous year. (10,000 persons) (10,000 persons)
100 100
The total unemployment rate decreased by 0.8 81.6
80 80
percentage points, year-on-year, to 2.9 per-
60 60
cent. The youth unemployment rate, covering 36.9
40 40
people aged 15 to 29 fell from a year earlier by 31.6 30.1

1.4 percentage points to reach 6.4 percent. 20 20


9.7
0 0

-20 -20
-21.8
-40 -40

-60 -60
2017 2018 2019 2020 2021 2022

Source: Statistics Korea


Increase in Wage Growth
Table Ⅰ- 3. Employment-Related Indicators 11
(10,000 persons, %)
Nominal wage growth recorded 4.9 percent,

Ⅰ. Economic Trends
2017 2018 2019 2020 2021 2022
an increase from 4.6 percent in 2021. By em- Economically
2,775 2,790 2,819 2,801 2,831 2,892
ployment status, regular workers saw a rise Active Population
in wage growth, in line with a sharp increase Change Rate 1.2 0.5 1.0 -0.6 1.1 2.2

in fixed wages resulting from a solid labor Labor Force Par-


63.2 63.1 63.3 62.5 62.8 63.9
ticipation Rate

1. Real Economy
market and high inflation expectations. In the Employed Per-
2,672 2,682 2,712 2,690 2,727 2,809
meantime, wage growth narrowed among sons
temporary and day workers. Change 31.6 9.7 30.1 -21.8 36.9 81.6

The growth rate for unit labor cost (non-farm Unemployment


3.7 3.8 3.8 4.0 3.7 2.9
Rate
basis) expanded as nominal hourly wages rose (15- to 29-year-
9.8 9.5 8.9 9.0 7.8 6.4
steeply despite a decline in labor productivity. olds)
Employment
60.8 60.7 60.9 60.1 60.5 62.1
Rate
(3) Prices (15- to 64-year-
66.6 66.6 66.8 65.9 66.5 68.5
olds)
Highest Consumer Price Inflation Since 1998 Source: Statistics Korea

In 2022, consumer price inflation was 5.1


percent year-on-year, significantly surpassing
Figure Ⅰ- 14. W
 age Growth by Employment
the inflation target of 2.0 percent, to record Status
the highest figure since the 7.5 percent seen in
2021 2022
1998. In terms of trends throughout the year, it (%) (%)
steeply rose from the 3 percent range earlier in 20 20

the year, and then hit a record high of 6.3 per-


cent for the year in July. It somewhat slowed 15 14.3 15

to the 5 percent range at year-end 2022, but


remained above the inflation target. 10
10.4
10
The expansion of the upward inflation trend
5.2 5.7
stemmed from an increase in supply-side 4.6
4.9 4.7 4.3
5 3.7 3.9 5
3.4
inflationary pressures due to a surge in in- 2.8

ternational commodity prices resulting from


0 0
the Russia-Ukraine war, as well as a rise in Nominal Regular (Regular (Overtime (Special Temporary
wage Employee Payment) Payment) Payment) & Day
demand-side inflationary pressures owing to Worker

the easing of quarantine measures. However, Source: Ministry of Employment and Labor

as the supply-side inflationary pressures were


substantially mitigated by a decrease in inter-
national oil prices and the downward pressure
on the economy gradually increased in the
second half, the high inflation trend some-
what slowed.
By item, the upward trend in the prices of
12 Table Ⅰ- 4. Growth in Wage Indicators
agricultural, livestock, and fisheries products
(%)
expanded due to deteriorating weather condi- 2016 2017 2018 2019 2020 2021
tions, but fell considerably in the fourth quar- Nominal Wage1) 3.3 5.3 3.4 1.1 4.6 4.9
ter. Among industrial products, the prices of (Real Wage) 2)
1.3 3.7 3.0 0.5 2.0 -0.2
petroleum products rapidly rose in line with a Nominal Hourly
5.2 6.8 3.9 2.6 4.5 6.2
Wage3)
surge in international oil prices in the wake of
Labor Productivity4) 3.9 4.5 1.9 1.8 2.8 1.4
the Russia-Ukraine war, and then entering the
Unit Labor Costs 5)
1.3 2.2 2.0 0.8 1.7 4.7
second half of the year, the margin of growth
Notes: 1) Based on businesses employing at least one regular em-
in prices narrowed substantially as interna- ployee, non-farm basis.

tional oil prices declined due to concerns over 2) Nominal wage/CPI.


3) Nominal wage/hours worked.
the sluggishness in demand. On the other 4) Real gross added value/(total employed persons × hours

hand, the prices of other industrial products, worked), non-farm basis.


5) Nominal hourly wage/labor productivity.
excluding petroleum products, gradually ex- Sources: M
 inistry of Employment and Labor, Statistics Korea, Bank of

panded with a rising trend, centered on pro- Korea

cessed food, due to the delayed reflection of


the preceding increase in raw material prices,
including international food prices. Electricity,
Figure Ⅰ- 15. M
 ajor Inflation Indexes
gas, and other bills also consistently expanded
in an upward trend, as the burden of rising Consumer Price Index (left) Excluding Food and Energy (left)
Producer Price Index (left) Import Price Index (right)
costs began to be reflected. 12)
In the case of
(YoY, %) (YoY, %)
overall service price inflation, while the prices 12 40

of public services continued a slow rising trend


9 30
at below 1 percent, along with housing rental
prices rising moderately at a slower pace, the 6 20

prices for personal services sustained a high


3 10
uptrend, particularly in dining-out costs.
In 2022, the growth of core inflation (CPI, 0 0

excluding food and energ y) soared to 3.6 -3 -10


21.1 4 7 10 22.1 4 7 10
percent, the highest level since the 3.6 per-
Sources: Statistics Korea, Bank of Korea
cent seen in 2008, centered on the prices for
personal services, including dining-out costs.
In terms of trends throughout the year, even
after July when the growth of consumer price
inflation peaked, core inflation continued a
rising trend for four months, and then slightly
slowed toward the year-end.

12) In 2022, electricity bills increased by a total of 19.3 won/kWh, being raised in April, July, and October, and gas bills
rose by a total of 5.47 won/MJ, being raised in April, May, July, and October.
Decline in Housing Sale Prices and Lease-
Figure Ⅰ- 16. C
 PI Inflation and Contribution by
hold Deposit Prices 13
Item

Ⅰ. Economic Trends
Agricultural & Marine Products Industrial Products
Housing sale prices dropped by 4.7 percent Electricity, Gas & Water Supply Services
Consumer Price Index CPI Excluding Food & Energy
throughout the year, sustaining a declining
(%, %p) (%, %p)
trend following June due to a rise in interest 6 6
5.1
rates and weakened expectations for housing 5 5

1. Real Economy
price increases.13) By region, the Seoul metro- 4 4
politan area significantly decreased, centered
3 2.5 3
on certain neighborhoods14) that experienced a
2 1.5 2
substantial growth margin in 2021. As for the
1 0.4 0.5 1
rest of the country, amid heightened down-
0 0
ward trends in Daegu, Daejeon, and Sejong,
-1 -1
most other cities also saw a declining trend. 2018 2019 2020 2021 2022

Leasehold deposit prices also declined, as Source: Statistics Korea

the demand for leaseholds shifted in favor of


monthly housing rentals owing to lending rate Table Ⅰ- 5. Rate of Increase in Housing Prices
hikes.15) In the meantime, monthly housing and Housing Leasehold Deposits
(compared to the last survey dates of
rental prices climbed slightly due to the ex- the previous periods)
pansion of demand. (%)

06~10 11~15 16~20 2022


2021
(4) Current Account avg. avg. avg. Year H1 H2
Housing
5.2 2.0 1.7 9.9 -4.7 0.2 -4.9
Prices
Contraction in Current Account Surplus Seoul Metro-
7.9 0.2 2.8 12.8 -6.5 -0.1 -6.4
politan Area
The current account in 2022 significantly Non-Seoul
Metropolitan 2.4 4.1 0.6 7.4 -3.0 0.5 -3.5
narrowed to a surplus of 29.8 billion dollars Area
compared to the previous year due to the de- Housing
teriorated goods account. The goods account
16) Leasehold 4.7 5.2 0.7 6.5 -5.6 0.0 -5.6
Deposits
surplus shrank, led mainly by a rise in imports
Housing
resulting from a surge in energy and raw ma- Monthly Rent .. .. -0.3 2.6 1.0 0.9 0.1
Prices
terial prices, as well as partly by a slowdown
Source: Korea Real Estate Board
in exports due to weakened growth trends in
major countries and a downturn in the IT in-

13) Housing sale prices dropped by 14.3 percent throughout the year based on the nationwide transaction-based price
index (based on sale prices of apartments and houses).
14) In 2021, housing sale prices in Siheung and Uiwang in Gyeonggi-do and in Yeonsu-gu in Incheon increased sub-
stantially, by 30.4 percent, 30.0 percent, and 34.7 percent, respectively, due to expectations surrounding a met-
ropolitan transportation network (GTX, Great Train eXpress), but in 2022, prices in those areas declined by 10.4
percent, 12.7 percent, and 15.0 percent, respectively (compared to the last survey dates of the previous periods).
15) Leasehold deposit prices dropped by 9.4 percent throughout the year based on the nationwide transaction-based
price index (based on leasehold deposit prices for both apartments and houses).
16) Current account: +59.7 billion dollars in 2019 → +75.9 billion dollars in 2020 → +85.2 billion dollars in 2021 → +29.8
billion dollars in 2022.
dustry. The services account deficit narrowed
14 Figure Ⅰ- 17. C
 urrent Account
owing to the robust transport account, sup-
ported by a high level of overseas freight rates, Goods Services
Primary Income Secondary Income
while the primary income account surplus
Current Account
expanded, led by a decline in dividend income (100 million dollars) (100 million dollars)

through securities investments. 1,500 1,500

1,200 1,200

Gradual Slowdown of Goods Exports Fol- 900 900


lowing a Favorable Trend
600 600

300 300
Exports on a customs clearance basis stood
at 683.6 billion dollars, maintaining their re- 0 0

cord high for two consecutive years,17) boosted -300 -300

by an uptrend in the first half of the year, but -600 -600


2013 2016 2019 2022p
into the second half of the year, exports be-
came sluggish, particularly to China and from Source: Bank of Korea

the IT sector, thereby exhibiting a distinct


trend where the figures increased in the first
Table Ⅰ- 6. Exports by Major Item
half and declined in the second half of the
(%)
year. 2021 2022
Exports of IT products, including semicon- % % Share % % Share
ductors, increased at a slower pace compared Change of total Change of total
IT Products 24.0 <35.3> 2.5 <34.1>
to the previous year due to a downturn in
Semiconductors 28.1 <20.2> 1.3 <19.3>
global demand led by China and a decline in
Wireless Communi-
unit prices. In particular, exports of wireless 24.7 <3.0> -10.4 <2.5>
cation Equipment
communication equipment were stagnant. Display Panels 18.9 <3.3> -1.1 <3.1>
In terms of non-IT products, exports of most Computers 27.0 <2.6> 7.8 <2.6>
cyclical products, including chemical and Non-IT Products 26.7 <64.7> 8.1 <65.9>
machinery products, also slowed. However, Automobiles 38.1 <14.3> 6.6 <14.3>
exports of automobiles sustained favorable Petroleum Products 23.8 <10.8> 12.3 <11.4>

growth thanks to the alleviation of supply Chemical Products 57.0 <6.0> 63.1 <9.3>

disruptions and to robust sales of eco-friendly Machinery Products 10.5 <8.9> 0.3 <8.4>
Ships 32.9 <8.2> 5.1 <8.1>
vehicles, and those of petroleum products also
Total Exports 1)
25.7 [6,444] 6.1 [6,836]
rose substantially due to the continued high
Note: 1) Figures in square brackets are the total amount of exports (in
levels of energy prices. hundred millions of USD).
Sources: K
 orea International Trade Association, Korea Customs
Service
Sharp Rise in Imports of Goods

Imports on a customs clearance basis stood


at 731.4 billion dollars, also maintaining their

17) Top three highest annual exports: (1) 683.6 billion dollars in 2022, (2) 644.4 billion dollars in 2021, (3) 604.9 billion
dollars in 2018.
record high for two consecutive years, owing
Table Ⅰ- 7. Imports by Major Item 15
to a surge in energy imports.18) Imports of
(%)
raw materials surged, led mainly by crude oil, 2021 2022

Ⅰ. Economic Trends
gas, and coal, affected by the global energy % % Share % % Share
supply problem. Imports of capital goods and Change of total Change of total
Crude Material & Fuel 46.7 <49.2> 30.1 <53.8>
consumer goods also increased, centered on
Energy 54.2 <18.3> 69.7 <26.1>
electric and electronic machinery, and grains
Capital Goods 20.2 <34.6> 7.5 <31.3>

1. Real Economy
and direct consumption goods (food and bev-
Electric·Electronic
erages), respectively. 21.5 <20.7> 13.4 <19.8>
Machinery
Machinery·Precision
20.9 <11.4> -1.9 <9.4>
Equipment
Continued Services Account Deficit
(Semiconductor
Manufacturing 50.1 <4.3> -10.6 <3.2>
The margin of services account deficit re- Equipment)

mained at a similar level to 2021, registering Consumer goods 18.3 <16.2> 9.1 <14.9>

5.5 billion dollars, mainly attributable to Total Imports1) 31.5 [6,151] 18.9 [7,314]
Note: 1) Figures in square brackets are the total amount of imports (in
special factors related to the pandemic.19) The
hundred millions of USD).
transport account surplus greatly widened, Sources: K
 orea International Trade Association, Korea Customs
Service
boosted by continued rising freight rates fol-
lowing last year. The travel account deficit
remained below the
Figure Ⅰ- 18. Services Account
pre-pandemic level due to a continued
contraction in overseas travel by domestic Manufacturing Services Transport
Travel Construction Services
residents. The deficit in the manufacturing
Other Services1) Services
services account was similar to that in the (100 million dollars) (100 million dollars)

previous year. 300 300

200 200

(5) Regional Economic Trends 20) 100 100

0 0

Regarding production activities by region, -100 -100

manufacturing production increased in most -200 -200

regions, but it sustained a similar level to -300 -300

the previous year in the Honam region. In -400 -400


the Chungcheong region, it declined due to -500 -500
2013 2016 2019 2022p
sluggishness in the IT sector, and in the Da-
egyeong region, it also decreased because of Note: 1) Total of other service accounts including other business
services, telecommunications, computers, and information
the flooding of POSCO facilities and the slow- services.

down in demand for mobile phones. Services Source: Bank of Korea

18) Past four years imports of energy: 108.6 billion dollars in 2019 → 73.0 billion dollars in 2020 → 112.6 billion dollars in
2021 → 191.0 billion dollars in 2022.
19) Service account: -26.8 billion dollars in 2019 → -14.7 billion dollars in 2020 → -5.3 billion dollars in 2021 → -5.5 bil-
lion dollars in 2022.
20) For detailed information on regional economic trends in 2022, see the Regional Economic Report (Quarterly) pub-
lished by the Bank of Korea, such as the March 2022 issue, June 2022 issue, September 2022 issue, and Decem-
ber 2022 issue.
production grew across all regions, led by food
16 Table Ⅰ- 8. Major Indicators by Region1)p
services & accommodations, and transport &
warehousing, thanks to a rise in face-to-face Seoul
Dong Chung Dae Gang
Metro Honam Jeju
activities due to the lifting of social distancing nam cheong gyeong won
politan
measures. Production
In terms of domestic demand trends,21) pri- Manufacturing Production
3.7 3.2 -0.5 0.0 -0.7 6.0 1.4
Index2)
vate consumption on a retail sales index basis
Services production index2) 4.9 4.9 4.2 3.5 3.0 5.5 8.6
dropped across all regions, except for in the
Demand
Dongnam region, due to a rise in prices and
Retail Sales Index2) -0.2 0.7 -0.9 -1.5 -0.4 -0.6 -0.1
interest rates. The Business Survey Index (BSI)
Facilities Investment BSI 3)
97 92 95 94 92 94 97
for facilities investment declined across all re-
Area of New Construction2) -21.5 2.2 -14.8 -26.7 -21.2 -16.1 9.3
gions, except for in the Jeju region, affected by Exports4) 2.5 9.5 4.9 12.5 10.2 0.7 -13.9
the uncertainty surrounding the global econo- Employment
my, thereby falling short of the reference value Changes in Number of
55.7 4.1 8.2 0.5 6.2 0.8 1.9
of 100. In terms of construction investment, Employed Persons5)
Unemployment Rate 3.0 3.1 2.3 2.9 2.7 3.2 2.1
due to sluggish housing demand, the total
Prices
area of new construction projects decreased
CPI2) 4.8 5.0 5.5 5.4 5.5 6.0 5.9
across all regions, except for in the Dongnam
Housing Sales Prices6) -6.5 -3.8 -3.6 -1.2 -4.2 0.5 -0.2
and Jeju regions. Exports rose at a slower pace
Housing Leasehold
across most regions compared to the previous -8.0 -3.2 -4.2 -1.6 -5.0 -0.3 0.0
Deposit Prices6)
year, influenced by sluggish global demand.
Notes: 1) T he Seoul metropolitan region includes Seoul, Incheon,
The Jeju region witnessed a decline in exports, and Gyeonggi-do(in case of Facilities Investment BSI, Seoul
centered on agricultural products and semi- is excluded). The Dongnam region includes Busan, Ulsan,
and Gyeongsangnam-do. The Daegyeong region includes
conductors. Daegu and Gyeongsangbuk-do.
In terms of employment conditions, the 2) Year-on-year rates of change.
3) Base = 100.
number of persons employed increased across 4) Customs-clearance basis, year-on-year rates of change.
all regions. Unemployment rates also main- 5) Year-on-year change (10,000 persons).
6) R
 ates of change compared with the last months of previous
tained a low level across most regions. year.
Amid a continued rise in the prices of pe- Sources: B
 ank of Korea, Statistics Korea, Ministry of Land,
Infrastructure, and Transport, Korea Customs Service,
troleum products, consumer prices recorded Korea Real Estate Board
a high growth rate across all regions, as the
prices of processed food and dining-out costs
saw growth expand, stemming from an in-
crease in international food prices, in addition
to a hike in electricity and gas charges.
In the meantime, housing sale prices and
leasehold deposit prices shifted to a decline
across most regions, led by the Seoul metro-
politan area and other cities.

21) Trends in regional consumption, facilities investment, and construction investment are estimated using retail sales
indexes, the facilities investment BSI, and the total area under new construction.
2. Financial and Foreign Figure Ⅰ- 19. M
 ajor International Interest Rates
17
Exchange Markets and EMBI+ Spread

Ⅰ. Economic Trends
U.S. Government Bond Yield (10-year)
German Government Bond Yield (10-year)

A. International Financial Markets EMBI+ Spread


(%) (%)
8 7

In 2022, international financial markets 7


6

2. Financial and Foreign Exchange Markets


exhibited a contraction in investor sentiment 6
5
5
and large fluctuations in price variables due
4
4
to contractionary monetary policies of central
3 3
banks in major countries, resulting from rising 2
2
inflation amid the prolonged Russia-Ukraine 1
1
war, as well as growing uncertainty regarding 0
0
economic prospects for the future. -1

-2 -1
13 16 19 22 22 .1 7 12

Sharp Rise in Long-Term Interest Rates Sources: Bloomberg, JP Morgan

Long-term interest rates on a 10-year U.S.


Table Ⅰ- 9. Major International Interest Rates and
Treasury bond yield basis rose considerably, in Risk Premiums (as of period–end)
line with interest rate hikes by the U.S. Fed- (%, bp)

eral Reserve22) in response to rising inflation. 2022


2021
Ⅰ Ⅱ Ⅲ Ⅳ
Entering June, U.S. long-term interest rates,
Government Bond Yield
which had exhibited an uptrend from earlier (10-year)
in the year, saw growth slow due to height- (U.S.) 1.51 2.34 3.01 3.83 3.87
ened concerns over economic sluggishness (Germany) -0.18 0.55 1.34 2.11 2.57
stemming from steep interest rate hikes, but Risk premium
they continued their upward trend on the (U.S. corporate Bond
186 189 236 220 188
Spread)1)
whole as the U.S. Federal Reserve strongly
(EMEs CDS Premium)2) 187 228 339 332 239
sustained its policy tightening stance.23) Ger-
(EMEs Spread)3) 386 368 461 467 375
many’s long-term rates also sharply rose due
Notes: 1) Yield on 10-year corporate bonds (Baa).
to rising inflation24) and interest rate hikes by 2) Weighted average of 18 EME CDS premiums, by Markit.

the European Central Bank (ECB),25) showing 3) JP Morgan EMBI+ (Emerging Markets Bond Index Plus).
Sources: Bloomberg, JP Morgan, Markit
a similar trend to that in the U.S.

22) In 2022, the U.S. Federal Reserve raised its policy rate by a total of 425 bp over seven occasions, starting with an
increase of 25 bp at the March FOMC meeting. In particular, from June to November, it raised the policy rate by 75
bp over four consecutive meetings.
23) In particular, market expectations for further U.S. interest rate hikes rose significantly when Federal Reserve Chair-
man Jerome Powell reaffirmed price stability as a priority at the Jackson Hole Economic Policy Symposium, held
on August 26.
24) Consumer price inflation in the euro region rose year-on-year from 7.4 percent in March to 10.6 percent in October.
25) At the July Monetary Policy Committee meeting, the ECB initially raised the policy rate by 50 bp in 2022 and raised
it again by a total of 250 bp over four occasions throughout the year.
The Emerging Markets Bond Index Plus
18
(EMBI+) spread soared immediately after
Russia’s invasion of Ukraine, but gradually
stabilized over time. Later, it fluctuated in line
with changes in expectations of major coun-
tries’ monetary policy tightening, and from
November onward, it dropped due to the sta-
bilization of U.S. inflation26) and the easing of
China’s zero-COVID policy.27)

Decline in Stock Prices in Advanced and


Emerging Countries

The U.S. Dow Jones Industrial Average de-


Figure Ⅰ- 20. Stock Indexes in Major Advanced
clined due to weakened investor sentiment Economies & MSCI Emerging
Markets Index
stemming from the outbreak of the Rus-
sia-Ukraine war and interest rate hikes by the Dow Jones Euro Stoxx 600
MSCI EM
U.S. Federal Reserve. From October onward,
(2013.1.1.=100) (2013.1.1.=100)
however, it rebounded thanks to expectations 300 300

for easing the pace of monetary policy tight-


ening stemming from the slowdown in infla- 250 250

tion,28) in addition to solid earnings reports at


200 200
companies. The STOXX Europe 600 Index also
decreased owing to mounting concerns over 150 150

an economic recession amid interest rate hikes


by the ECB. The MSCI Emerging Markets 100 100

Index mostly showed a similar trend to stock


50 50
indexes in advanced economies, influenced by 13 16 19 22 22.1 7 12

changes in global investor sentiment. Source: Bloomberg.

Strong U.S. Dollar Against Euro and Yen

The U.S. dollar was significantly strength-


ened by the U.S. Federal Reserve’s tightened
monetary policy stance. In 2022, the currency

26) Consumer price inflation in the U.S. dropped year-on-year from 9.1 percent in June to 6.5 percent in November.
27) On November 10, Chinese President Xi Jinping instructed that efforts should be made to minimize the impact of
COVID-19 policy on the economy, and Chinese health authorities later announced a series of measures to ease
restrictions, such as shortening the quarantine period, reducing PCR test requirements, and lifting lockdowns in
high-risk areas.
28) In October, the U.S. consumer price inflation year-on-year stood at 7.7 percent, below market expectations of 7.9
percent (November 10).
appreciated against the euro and the yen by 6.3
Figure Ⅰ- 21. USD per EUR and JPY per USD
19
percent and 13.9 percent, respectively. It ex- Exchange Rates
hibited a considerably strong tendency against

Ⅰ. Economic Trends
USD per EUR (left, inverted) JPY per USD (right)
the euro, affected by intensified concerns (USD per EUR) (JPY per USD) (USD per EUR) (JPY per USD)
over an economic slowdown in the euro area 0.9 160 0.90 160

stemming from the prolonged Russia-Ukraine 150


1.0 0.95
150
war, but from October onward, it appreciat- 140

2. Financial and Foreign Exchange Markets


ed at a slower pace due to the contractionary 1.1 130 1.00
140
120
monetary policy at the ECB29) and the easing 1.2 1.05
110
of concerns over U.S. inflation. The U.S. dol- 130
1.3 100 1.10
lar displayed a relatively favorable upswing
90 120
against the Japanese yen because of the ac- 1.4 1.15
80
commodative monetary policy stance at the
1.5 70 1.20 110
Bank of Japan, but from the end of October, 13 16 19 22 22.1 7 12

the degree of dollar strength narrowed again, Source: Reuters

owing to Japanese authorities’ intervention in


dollar sales30) and changes in the yield curve
control policy at the Bank of Japan.31)

B. Domestic Financial Markets

In 2022, domestic financial markets were


significantly influenced by monetary policy
normalization at home and abroad. Long-term
market interest rates rose substantially due to
the spread of global inflation and an intensi-
fied increase in policy rates in major countries,
while short-term market interest rates also
rose due to Base Rate hikes. In particular,
corporate bond yields and CP rates increased
considerably, influenced by the PF-ABCP
market instability in October, and then their
growth rate was reduced owing to market
stabilization measures by the government and
the Bank of Korea, as well as the expectation

29) At the July Monetary Policy Committee meeting, the ECB raised the policy rate by 50 bp, and again at the Septem-
ber and October meetings by 75 bp.
30) The Ministry of Finance in Japan announced that it conducted foreign exchange intervention worth around 6.3 tril-
lion yen in October (October 31).
31) At the December Monetary Policy meeting, the Bank of Japan expanded the variation range of 10-year government
bond yields from ±0.25 percent to ±0.50 percent (December 20).
of an adjustment in the pace of monetary
20
tightening in major countries. Stock prices
dropped due to concerns over an economic
slowdown resulting from monetary policy
normalization in major economies, grow-
ing geopolitical risk in Ukraine, and China’s
COVID-19 lockdown measures. Meanwhile,
deposit-taking at banks saw growth contract
significantly, particularly in money market
deposit accounts. In terms of bank lending,
corporate loans increased substantially due
to growing corporate demand for working
capital stemming from a surge in raw material
prices, and a rise in bank lending as a result of
deteriorated conditions for the issuance of cor-
porate bonds, while household loans shifted
to a decline, owing to a rise in lending rates, a
slowdown in housing transactions, and tight-
ened lending regulations.

(1) Interest Rates

Sharp Increase in Long-Term and Short-Term


Interest Rates

In 2022, the 3-year Treasury bond yield ex-


hibited an uptrend owing to concerns over the
acceleration of monetary policy normalization
at the U.S. Federal Reserve and in major econ-
omies, in addition to rising global inflation.
From September onward, due to financial
market instability in the U.K.,32) as well as to

29) At the July Monetary Policy Committee meeting, the ECB raised the policy rate by 50 bp, and again at the Septem-
ber and October meetings by 75 bp.
30) The Ministry of Finance in Japan announced that it conducted foreign exchange intervention worth around 6.3 tril-
lion yen in October (October 31).
31) At the December Monetary Policy meeting, the Bank of Japan expanded the variation range of 10-year government
bond yields from ±0.25 percent to ±0.50 percent (December 20).
32) The U.K Cabinet, led by Prime Minister Liz Truss, announced a large-scale tax cut plan that included the abolition
of the top bracket of income tax and the withdrawal of a plan to raise corporate taxes (September 23). As the an-
nouncement triggered severe turmoil in U.K financial markets, such as a steep rise in government bond yields and
a plunge in the British pound, the aforementioned tax cut plan was withdrawn and Liz Truss resigned as prime min-
ister (October 20).
the domestic PF-ABCP market instability in
Figure Ⅰ- 22. Major Market Interest Rates 21
October, 33) the volatility of those bonds ex-
panded significantly and eventually recorded 3-year KTBs (left) 3-year AA- Corporate Bonds (left)

Ⅰ. Economic Trends
91-day CPs (left) 91-day MSBs (left)
its peak for the year. Since then, the yield on
Base Rate (left) Term Spread (right)1)
3-year Treasury bonds plummeted owing to (% per annum) (%p) (% per annum) (%p)

market stabilization measures taken by the 6.0 3.0 6.0 3.0

government and the Bank of Korea, 34)


expec- 5.0 5.0

2. Financial and Foreign Exchange Markets


tations of an adjustment in the pace of rising 2.0 2.0
4.0 4.0
interest rates in major economies, including
in the U.S., and the downward stabilization of 3.0 1.0 3.0 1.0

the USD/KRW exchange rate.


2.0 2.0
The 3-year corporate bond yield also rose 0.0 0.0

throughout the year. In 2022, the 3-year cor- 1.0 1.0

porate bond spread over the Treasury bond 0.0 -1.0 0.0 -1.0
13 16 19 22 22.1 7 12
yield 35) widened greatly, affected by the ex-
pansion of interest rate volatility, continued Note: 1) Yields difference between 3-year KTBs and the Base Rate.
Sources: Korea Financial Investment Association, Bank of Korea
geopolitical risk in Ukraine, the crowding-out
effects among credit bonds stemming from a
large-scale issuance of bank bonds and Korea
Electric Power Corporation (KEPCO) bonds,36)
as well as market instability after October,
and then narrowed slightly following market
stability measures.
Meanwhile, short-term market interest

33) As Gangwon-do applied for the corporate rehabilitation of the Gangwon Jungdo Development Corporation (GJC),
the PF-ABCP, which was issued by the special purpose company Iwon Jeil Cha based on loans taken out by the
GJC, was listed as being in default (October 4). As a result, credit risk aversion heightened, particularly in the CP
market, and subsequently market volatility spiked.
34) On October 23, the government announced the bond market stabilization fund (worth 20 trillion won), the corpo-
rate bond and CP purchasing program by policy financial institutions (worth 16 trillion won), liquidity support for
securities firms through securities finance corporations (worth 3 trillion won), guaranteed support for real estate PF
businesses (worth 15 trillion won), and the purchasing program for PFs backed by securities firms (worth 1.8 trillion
won). On October 27, the Bank of Korea announced the expansion of the range of eligible collateral for lending
facilities and eligible securities, a purchase of RPs for short-term financial market stabilization (worth 6 trillion won),
a purchase of RPs from institutions contributing to the bond market stabilization fund (worth 2.5 trillion won). For
detailed information on market stabilization measures by the Bank of Korea, see B. Financial Market Stabilization
Measures under Section 3, Chapter II.
35) The 3-year corporate bond spread over the Treasury bond yield (rated AA-) widened from 61 bp at the end of De-
cember 2021 to 81 bp at the end of June, to 109 bp at the end of September, to 179 bp at the end of November
2022, and then narrowed to 148bp at the end of December 2022.
36) In 2022, the net worth of issued credit bonds rated AAA, including Korea Electric Power Corporation (KEPCO)
bonds and bank bonds, was a total of 53.1 trillion won, accounting for 105 percent of the net issuance of overall
credit bonds, worth 50.6 trillion won. This had a crowding out effect on demand for other credit bonds with rela-
tively inferior credibility.
rates also soared in 2022. The yield on 91-day
22
Monetary Stabilization Bonds rose, reflecting
Base Rate hikes, and the yield on 91-day CPs
rated A1 increased steeply, influenced by the
PF-ABCP market instability, and then de-
clined slightly as of year-end 2022.
Interest rates on bank loans and deposits
(based on newly taken deposits) displayed a
sharp increase, reflecting a rise in market in-
terest rates.37)

(2) Stock Prices

Sharp Decline in KOSPI

In 2022, the Korea Composite Stock Price


Figure Ⅰ- 23. KOSPI and KOSDAQ Indexes
Index (KOSPI) plunged due to monetary poli-
cy normalization in major economies and con- KOSPI (left, 1980.1.4.=100) KOSDAQ (right, 1996.7.1.=1,000)

cerns over a slowdown in the global economy. 3500 1400 3200 1400

In chronological order, from the beginning of 3000 1300


3000 1200
the year, it continued to adjust, owing to con- 1200
2800
cerns over an economic slowdown stemming 2500 1000
1100
2600
from concerns over interest rate hikes by the 2000 800 1000
U.S. Federal Reserve, intensified geopolitical 2400
900
1500 600
risk in Ukraine, and COVID-19 lockdown 2200
800
measures in China. In July, it rebounded due 1000 400
2000 700
to the influx of low-priced stock purchases,
500 200 1800 600
but declined again in September because of 13 16 19 22 22.1 7 12

U.K. financial market anxiety, and eventually Source: KOSCOM

hit bottom for the year at 2,155 on September


30. Since then, although it shifted to a rise,
buoyed by expectations of an adjustment in
the pace of interest rate increases at the U.S.
Federal Reserve, it closed the year at 2,236,
down 24.9 percent compared to the end of
2021, due to the repeatedly heightened possi-
bility of an economic downturn resulting from

37) In December 2022, lending rates stood at 5.56 percent, up by 2.31 percentage points from 3.25 percent in Decem-
ber 2021. In terms of borrower types, corporate lending rates and household lending rates rose by 2.42 percentage
points and by 1.94 percentage points, respectively. Meanwhile, deposit rates were 4.22 percent, up by 2.52 per-
centage points from 1.70 percent in December 2021.
concerns over continued monetary policy
23
tightening in major countries and the deteri-
oration of economic indicators in the U.S. and

Ⅰ. Economic Trends
China.
T he KOSDAQ index ex hibited similar
trends to the KOSPI.

2. Financial and Foreign Exchange Markets


(3) Deposits and Loans at Financial Insti-
tutions

Decline in Margin of Deposit Growth at


Banks

In 2022, deposit-taking at banks was sig-


Table Ⅰ- 10. D
 eposits at Financial Institutions
nificantly reduced compared to 2021. While (changes in deposits)
funds flowed from money market deposit (trillion won)

accounts to time deposits due to a steep rise 2018 2019 2020 2021 2022

in time deposit rates, overall deposit-taking at Deposits at Banks1) 91.6 106.3 188.4 198.5 107.4
Demand Deposits 10.9 65.9 189.3 131.0 -104.9
banks diminished owing to weaker incentives
Time & Savings
for banks to raise funds, stemming from a 72.2 48.3 -14.4 41.8 200.1
Deposits
slowdown in the growth margin of lending. Marketable
7.8 -14.6 14.6 33.9 13.6
Deposits of non-banking institutions, such Instruments2)
Deposits at Asset
as credit cooperatives, showed a rise, mainly Management 53.8 98.6 42.2 93.9 44.4
led by time deposits. Companies3)
Deposit-taking by asset management com- Deposits at Mutual
8.6 6.1 13.2 23.3 17.6
Savings Banks
panies saw its margin of growth narrowing
Deposits at Credit
39.7 60.7 50.1 69.4 86.0
due to outflows of funds from stock-type and Cooperatives4)
bond-type funds, affected by a drop in stock Notes: 1) Figures exclude deposits from banks, government, and non-
residents.
prices and interest rate hikes at home and
2) CDs, RPs, cover bills, and bank debentures.
abroad.38) 3) D
 erivatives, real estate, indirect special-assets, mixed-asset
funds, and balanced funds.
4) Mutual credit companies, community credit cooperatives,
Household Lending Shifts to a Decline Amid and credit unions.
Sources: Bank of Korea, Korea Financial Investment Association
Steep Rise in Corporate Lending

In 2022, corporate loans saw their margin of


growth widen significantly, centered on large
corporate loans by banks.
Amid rising demand for working capi-

38) In 2022, in terms of deposit-taking by asset management companies for each fund type, bond-type funds and
stock-type funds witnessed outflows of 11.1 trillion won and 4.6 trillion won, respectively. On the other hand, MMF
and new funds marked inflows of 16.0 trillion won and 48.0 trillion won, respectively.
tal, driven by a surge in raw material prices,
Table Ⅰ- 11. Loans by Financial Institutions
24
large corporate loans exhibited a substantial (changes in amounts during the period)
increase, as demand for financing among (trillion won)

large corporations was concentrated on bank 2018 2019 2020 2021 2022
loans due to worsened conditions for issuing Corporate Loans 81.8 90.2 169.6 171.5 198.0
corporate bonds. Small and medium-sized Banks 46.7 47.7 110.8 94.1 114.9

enterprise (SME) loans also increased, cen- Large Corporations 6.9 -1.8 20.9 9.0 44.3

tered on loans for working capital on the back SMEs 39.8 49.4 90.0 85.1 70.6
Non-Banks1) 35.1 42.5 58.8 77.4 83.1
of continued financial support in the wake of
Household Loans 2)
76.8 58.3 128.7 123.5 -7.8
COVID-19.39)
Deposit Banks 52.4 54.6 82.2 60.2 -7.5
In the meantime, household loans by banks,
(Mortgage Loans) 30.1 39.7 49.9 45.7 14.6
including policy mortgage loans, shifted to a
(Other Loans) 22.4 14.9 32.2 14.6 -22.1
decline, affected by a contraction in demand
Non-Bank Depository
6.8 -4.5 7.6 27.6 -6.0
for lending due to lending rate rises and a Institutions3)
slowdown in housing transactions, as well Other Financial
17.5 8.1 39.0 35.7 5.7
Institutions4)
as the government’s tightening of household
Notes: 1) Based on loans by mutual credit companies, credit unions,
lending regulations.40) community credit cooperatives, mutual savings banks.

By lending type, mortgage loans saw their 2) Based on household credit statistics.
3) M
 utual credit companies, credit unions, community credit
margin of growth narrow significantly, and cooperatives, mutual savings banks, trusts, and postal

other loans exhibited a substantial decline, savings.


4) Insurance companies, pension funds, specialized credit
centered on credit loans. financial companies, public financial institutions, etc.
Sources: Bank of Korea, Financial Supervisory Service

(4) Foreign Exchange Market

Expansion of Volatility in USD/KRW Ex-


change Rate

In 2022, the volatility of the USD/KRW ex-


change rate rose significantly due to continued
high inflation and to subsequent rapid interest
rate increases by the U.S. Federal Reserve.
From January to February, the USD/KRW

39) Loans provided by financial institutions in relation to COVID-19 financial support were originally scheduled to end
at the end of September 2022. Early this year, however, the government implemented additional financial support
measures by extending the maturity of the aforementioned loans by up to three years and by delaying their repay-
ment by up to one year (press release from the Financial Services Commission on September 27, 2022).
40) In accordance with the Household Debt Management Measures announced on April 29 and October 26, 2021, the
second phase of the individual borrower-level DSR has been applied since January 2022 to individual borrowers
with total loans exceeding 200 million won, and the third phase of the individual borrower-level DSR has been ap-
plied since July 2022 to individual borrowers with total loans exceeding 100 million won. Meanwhile, the regulation
that limited one’s credit limit on bank loans to be within one’s annual income, effective August 2021, was abolished
in July 2022.
exchange rate fluctuated around 1,200 won,
Figure Ⅰ- 24. E xchange Rate, Nominal Effective
25
and then surged to 1,440 won in October, af- Exchange Rate Index for Korea1)
fected by a contraction in investor sentiment

Ⅰ. Economic Trends
USD/KRW (left)
resulting from the Russia-Ukraine war and Nominal Effective Exchange Rate Index for Korea (right)

China’s prolonged COVID-19 lockdown mea- (won) (2020=100) (won) (2020=100)


1,600 140 1,500 130
sures, as well as the strengthening of the U.S.
dollar,41) which stemmed from the acceleration 120

2. Financial and Foreign Exchange Markets


1,400 120 1,400
of monetary policy tightening at the U.S. Fed-
eral Reserve in the wake of continued high 110

1,200 100 1,300


inflation. Later, following the stabilization of
100
high inflation, which had exceeded market
expectations, and implications by the U.S. 1,000 80 1,200
90
Federal Reserve regarding the possibility of
adjusting the pace of interest rate rises, the U.S. 800 60 1,100 80
13 16 19 22 22.1 7 12
dollar shifted downturn and the USD/KRW
Note: 1) The USD/KRW rate is the closing price on the Seoul
exchange rate also rapidly declined to the 1,260 Foreign Exchange Market and the Nominal Effective
won range. As of year-end 2022, the USD/ Exchange Rate Index for Korea is based on BIS
announcements.
KRW exchange rate stood at 1,264.5 won, a Sources: Bank of Korea, BIS
depreciation of 6.0 percent from the 1,188.8
won seen at year-end 2021. Figure Ⅰ- 25. USD/KRW Exchange Rate Volatility
Despite the strengthening of the U.S. dollar, (annual average)
the nominal effective exchange rate (NEER)
Intra-Day1) Day-to-Day 2)
index of the Korean won (BIS basis) increased (won) (won)
slightly, influenced by the weakening of the 10 10

Chinese yuan and Japanese yen resulting


8 8
from accommodative monetary policies in
China and Japan, both of which account for 6 6
a high proportion of trade with Korea. The
NEER recorded 98.23 as of year-end 2022, up 4 4

by 0.9 percent from 97.39 as of year-end 2021.


2 2
Meanwhile, in 2022, both intra-day and
day-to-day volatility in the USD/KRW ex-
0 0
change rate increased to an average of 8.4 and 2013 2016 2019 2022

6.5 won, respectively, compared to 5.2 and 3.6 Notes: 1) Average of the intra-day highest rate minus the intra-day
lowest rate.
won in 2021. 2) A
 verage of the absolute value of the day closing rate
minus the previous day closing rate.
Source: Bank of Korea

41) The U.S. Dollar Index (DXY), which measures the value of the U.S. dollar relative to six major currencies (the euro,
Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc), increased from an average of 96.9
in the first quarter to an average of 108.3 in the third quarter.
Sustaining Stability in the Foreign Currency
26 Figure Ⅰ- 26. Foreign Exchange Swap Rate
Money Market
Arbitrage Opportunities (3-month)1)
Foreign Exchange Swap Rate (3-month)
In 2022, while the USD/KRW exchange rate
KRW/USD Interest Rate Differential (3-month)
exhibited significant volatility along with a (%, %p) (%, %p)
surge in the U.S. dollar, the foreign exchange 4 4 4

market generally sustained its stable trend.


Arbitrage opportunities with a 3-month 2 2 2

maturity, which are defined as the KRW/USD


interest differential after subtracting the swap 0 0 0

rate,42) maintained a relatively stable level. In


addition, foreign borrowing conditions re- -2 -2 -2
mained stable with the margin of growth for
premiums on foreign borrowings by domestic
-4 -4 -4
banks restricted43) due to improved macropru- 13 16 19 22 22.1 7 12

dential stability. Note: 1) A rbitrage opportunities = KRW/USD interest rate


differential - swap rate.
Meanwhile, the foreign exchange swap Sources: Bank of Korea, Korea Money Brokerage Corp., Tullett
rate with a 3-month maturity dropped to Prebon Money Brokerage (Korea) Ltd

minus 1.70 percent in late November, due to


the widening of the inversion of the KRW/
USD interest rate differential in the wake of QR BOX
the U.S. Federal Reserve’s sharp hikes in its
policy rate, in addition to the impact of a con-
QR 1
traction in investor sentiment due to Russia’s
Monetary Policy
invasion of Ukraine and the economic slow-
Report Website
down in China. Entering December, however,
as the margin of the decrease narrowed due
to heightened expectations of an adjustment
in the pace of interest rate hikes by the U.S.
QR 2
Federal Reserve, the margin recorded minus
Regional Economic
1.15 percent as of year-end 2022, down by
Report Website
1.83 percentage points compared to the end of
2021.

42) A foreign exchange swap is a transaction through which two parties exchange different currencies at an agreed
exchange in the present time . They then re-exchange the principals after a set period at the forward exchange
rate that was determined when the relevant contract was concluded. The foreign exchange swap rate is expressed
as the annualized rate (%) of the difference between the forward and spot exchange rates as against the spot ex-
change rate: {(Forward exchange rate - Spot exchange rate) / Spot exchange rate}.
43) In March 2020, amid heightened concerns over the spread of COVID-19, the premiums on short-term foreign cur-
rency borrowings by domestic banks was at the 67 bp level, up 64 bp compared to the average of 2019. However,
in November 2022, it remained at a mere 19 bp, up by 17 bp compared to the average of 2021.

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