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A s s e t M A n A G e M e n t source: 2012 and 2013 data from bank of korea 2014 data from shinhan fsb research institute index 2012 2013 2013(f) 1H 2H(f) annual (f) 1H 2H annual gdp growth rate (%) 2.0 1.9 3.6 2.8 3.5 3.1 3.3 private consumption (%) 1.7 1.6 2.1 1.9 3.4 2.2 2.8 equipment investment (%) -1.9 -8.2 6.3 -1.2 6.5 4.0 5.2 construction investment (%) -2.2 5.2 6.9 6.1 1.0 2.0 1.5 current account balance (in $1 billion) 43.1 29.8 33.2 63.0 18.0 16.0 34.0 export (on a custom clearance basis, %) -1.3 0.6 5.0 2.8 6.0 4.0 5.0 import (on a custom clearance basis, %) -0.9 -2.9 3.1 0.1 8.0 6.0 7.0 <TabLe 2> ouTLooK for Korea’s MaJor eConoMiC indexes investors are likely to withdraw from the Ko- rean market. Tis would slightly increase the average exchange rate to about 1,110 won per dollar. implications: Preparing for Market instability from us exit strategy uncertainty In Korea, there will be greater economic vi- tality but slow recovery in 2014. Te increase in exports and domestic demand will be lim- ited due to uncertainty surrounding the Fed- eral Reserve’s exit strategy. Te Fed’s scaling back quantitative easing and plans to raise the interest rate are like- ly to impact interest rates around the world including in Korea. Tey could also trigger a large-scale foreign capital outfow from emerging markets, causing confusion in the global economy. Terefore, closely moni- toring major economies’ decisions and their outcomes is essential in order to spot signs of trouble at an earlier stage in global fnancial market. If the recovery slows down and the real es- tate market continues to struggle, household debt burden and poor business performance are expected to be destabilizing factors in the Korean economy. Feeble businesses, low-in- come individuals and heavy debtors are es- pecially susceptible to shocks from interna- tional and domestic economy. As a result, it is important for households, frms and the government to all strengthen their risk man- agement plans and boost asset quality, in case of fnancial emergency situations. Individuals and businesses should closely monitor fnan- cial conditions while the government should prevent delinquencies and defaults from threatening the national economy by con- stantly encouraging corporate restructuring and promoting measures to help create a sof landing for household debt. it would scale back quantitative easing, but soon showed a stable decline in September following the Federal Open Market Com- mittee’s (FOMC) decision to maintain its as- set purchase program. Since the interest rate has already responded to the Fed’s decision this year, it is unlikely to fuctuate much in the frst half of 2014 when the Fed starts re- ducing quantitative easing. However, in the second half, the Fed’s exit strategy is expected to drive up the interest rate. Te exit strategy could also cause foreign capital outfow from the Korean bond market, putting upward pressure on interest rates. Te Bank of Korea is expected to respond to fnancial market instability, weak recov- ery momentum, and global capital fows by making monetary policy shifs. Even with loose monetary policy remaining largely un- changed, interest rate is predicted to increase as the U.S. exit strategy leads to a withdrawal from the government bond market by foreign investors. Issuing more government bonds to fnance welfare expenditure is also expected to increase interest rate. Te interest rate for three-year maturity government bond will rise slightly to around 3.2 percent in 2014. While Bernanke’s plans to scale back quan- titative easing caused the won-dollar ex- change rate to increase in May, the rate fell again due to Korea’s stronger economic fun- damentals relative to other emerging markets such as India, Brazil and Indonesia. Te ex- change rate also fell greatly in September as the U.S. showed signs of delaying its plans to reduce quantitative easing. Although Korea is expected to maintain its current account surplus for next year, anxiety over a reduced quantitative easing program and raised in- terest rate will drive up exchange rates. If the U.S. exit strategy aggravates the unstable en- vironment in emerging economies, foreign