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The green book: current economic trends.

Overview

The Korean economy converged into its growth potential with continued recovery during the first half. In July, however, it slightly slowed due to temporary and exogenous factors.

Industrial production maintained a double-digit growth during the first half, whose pace has moderated to 4.4 percent affected by production disruption due to auto workers' labor strikes and heavy rainfalls.

Service activity sustained a stable growth in 5 percent range during the first half, but it substantially slowed to 2.1 percent in July.

Consumer goods sales posted a negative growth of 0.5 percent in July after maintaining growth in 5 percent range during the first half.

Facility investment continued growth trend, registering 4.2 percent increase thanks to the robust semiconductors. Meantime, construction investment was sluggish largely due to heavy rainfalls.

Employment stayed below the trend growth affected mainly by worsening weather conditions.

Prices increased on-year 2.9 percent in August on the back of rise in agricultural products.

The current account posted a deficit of US$210 million in July reversing from the surplus in May and June, driven by factors such as widening travel account deficit.

The economic indicators including preliminary ones were returning to normal tracks in August as the effects from one-off and temporary factors were gradually removed.

Exports in August continued a double-digit growth amid strong global demand thanks to the ameliorating one-off factors such as auto workers' strikes.

Preliminary August indicators show that discount store sales and the value of credit card use have expanded while department store sales were slightly down due to irregular factors.

The government will closely monitor external conditions such as international oil prices and the global economy as well as movements in domestic economy. At the same time, the government will maintain the current macro-economic policy stance while pursuing sector-by-sector fine-tuning.

1 Global Economy

Despite a slight slowdown of the US economy, the global economy maintained solid growth helped by a high growth of Chinese economy and the recovery in Japan and the eurozone. Meantime, downside risks to the global economy continue. They include high oil prices, interest rate hikes in major economies and further slowdown of the US economy.

US

The US economy recorded an annualized 2.9 percent (preliminary) growth during the second quarter, a downfall from 5.6 percent in the first quarter. It is up 0.4 percentage point from the advance preliminary figure. The downswing is largely attributable to sluggishness in housing market as was shown in the record low sales of existing houses in two years. Slow individual consumption due to energy price rise also contributed to the economic slowdown.

The Federal Reserve Board decided to keep the target for the federal funds rate unchanged at the Federal Open Market Committee held on August 8. The interest rate freeze has been confirmed for the first time since June 2004 due to concerns over a US economic slowdown and prospect for easing inflationary pressure. Core CPI materialized its stable trend in July.

Goods and service account deficit was slightly reduced in June at US$64.8 billion from US$65.0 billion in May. The deficit was narrowed boosted by economic recovery in the eurozone and Japan and export surge thanks to a weak US dollar. Meanwhile, trade deficit with China continued to expand.

Accumulated ten-month fiscal deficit until July 2006 went down on-year 20 percent thanks mainly to increased tax revenue. Accordingly, the Congressional Budget Office lowered the budget deficit projection from 2.6 percent to GDP to 2.0 percent thereby easing concerns over fiscal deficit.
(Percentage change from previous period)

                                      2005

                          Annual   Q2     Q3     Q4

Real GDP1                  3.2     3.3   4.2    1.8
Industrial Production      9.0     5.4   -0.2   7.0
Retail Sales               7.2     2.4   2.0    0.5
New non-farm payroll      2,035    536   510    412
  employment (thousand)
Existing home sales (1)    4.4     3.7   -0.2   -3.3
Core CPI                   2.2     0.5   0.4    0.6

                                        2006

                           Q1     Q2    Jun    Jul    Aug

Real GDP1                 5.6    2.9     --     --    --
Industrial Production     5.1    6.2    0.8    0.4    --
Retail Sales              3.2    0.9    -0.4   1.4    --
New non-farm payroll      560    407    134    121    128
  employment (thousand)
Existing home sales (1)   -2.2   -1.5   -1.6   -4.1   --
Core CPI                  0.6    0.9    0.3    0.2    --

(1) Annualized rate


[1-1] US GDP (q-o-q, annualized rate)

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[1-2] US non-farm payroll employment (m-o-m change)

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[1-3] US federal funds rate and consumer prices

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China

Amid concerns over overheating, fixed asset investment and M2 growth slightly slowed helped by a series of tightening measures.

The People's Bank of China implemented further tightening measures in August by raising the reserve requirement ratio against foreign currency deposits (from 3 percent to 4 percent). In a bid to rein in the excess liquidity, the Bank also raised both one-year benchmark deposit and lending rates.
(Percentage change from same period in previous year)

                                                      2005

                                         Annual    Q2     Q3     Q4

Real GDP                                  9.9     10.1   9.8    10.2
Fixed asset investment (accumulated)      27.2    27.1   27.7   27.2
Industrial production                     16.4    16.5   16.2   16.4
M2 (q-o-q, end-period balance             16.0    15.7   17.9   17.6
  basis, %)
Exports                                   28.4    30.9   28.7   21.7

                                                    2006

                                          Q1     Q2    Jun    Jul

Real GDP                                 10.3   11.3    --     --
Fixed asset investment (accumulated)     29.8   31.3   31.3   30.5
Industrial production                    15.9   18.0   19.5   16.7
M2 (q-o-q, end-period balance            18.9   18.4   18.4   18.4
  basis, %)
Exports                                  26.6   24.1   23.3   22.6


Japan

The Japanese economic growth sharply slowed to 0.2 percent in the second quarter compared with the previous period as exports contribution reversed course to post a negative growth and investment in the public sector further decreased.

Meanwhile, facility investment has further expanded. Private consumption indicated a solid growth. Given that, it is considered that the domestic demand-driven growth momentum continues.
(Percentage change from previous period)

                                             2005

                                Annual    Q1     Q2     Q3     Q4

Real GDP                         2.6     1.3    1.4    0.2    1.1
  --Private consumption          2.1     1.5    0.7    0.4    0.6
  --Private facility             7.7     2.7    1.9    1.8    0.3
    investment
  --Exports contribution         0.5     -0.1   0.3    0.0    0.6
GDP deflator (y-o-y, %)          1.3     -1.2   -1.1   -1.3   -1.6

                                     2006

                                 Q1     Q2

Real GDP                        0.7    0.2
  --Private consumption         0.2    0.5
  --Private facility            3.3    3.8
    investment
  --Exports contribution        0.0    -0.1
GDP deflator (y-o-y, %)        -1.2   -0.8


Eurozone

The eurozone in the second quarter posted a record high economic growth of 0.9 percent in 6 years thanks to a strong German economic growth of 0.9 percent led by robust construction business.
(Percentage change from previous period)

                                               2005

                                  Annual    Q2    Q3     Q4

Eurozone GDP                       1.9     0.4    0.6   0.3
Eurozone industrial production     1.2     0.7    0.8   0.7
German GDP                         1.1     0.3    0.5   0.3

                                             2006

                                   Q1     Q2    May    Jun

Eurozone GDP                      0.8    0.9     --     --
Eurozone industrial production    1.1    1.0    1.8    -0.1
German GDP                        0.7    0.9     --     --


[1-4] China's GDP and fixed asset investment

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[1-5] Japan's GDP growth

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[1-6] Eurozone GDP growth and industrial production

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2 Private consumption

Private consumption in the second quarter rose 4.4 percent from a year earlier (preliminary, GDP) driven by increased consumption in durable, semi-durable and non-durable goods. Compared with the previous quarter, it gained 0.9 percent.

Private consumption

(y-o-y, %): 1.6 (Q1 2005) ([right arrow]) 3.0 (Q2) ([right arrow]) 4.0 (Q3) ([right arrow]) 4.2 (Q4) ([right arrow]) 4.8 (Q1 2006) ([right arrow]) 4.4 (Q2) (SA*, q-o-q, %): 0.5 (Q1 2005) ([right arrow]) 1.4 (Q2) ([right arrow]) 1.0 (Q3) ([right arrow]) 1.1 (Q4) ([right arrow]) 1.3 (Q1 2006) ([right arrow]) 0.9 (Q2)

* SA: seasonally adjusted

Consumer goods sales in July edged down 0.5 percent from a year earlier as temporary factors including auto workers' strikes and heavy rainfalls resulted in a negative growth of durable and non-durable goods sales. Compared with the previous month, the consumer goods sales decreased 5.0 percent.
(Percentage change from same period in previous year)

                                          2005

                              Q1    Q2    Jul     Q4    Annual

Consumer goods sales         1.2    3.4    5.1    6.8     3.9
(Seasonally adjusted) (2)    0.2    1.9    0.7    2.2      --
  --Durable goods (3)        2.9    6.3   10.3    7.5     5.9
    * Automobiles           -2.6    4.7   29.1   18.5     9.5
  --Semi-durable goods (4)   2.6    7.2    9.0   11.7     7.9
  --Non-durable goods (5)   -0.3    0.3    0.8    3.8     1.3

                                             2006

                             Q1    Q2 (1)   May    Jun (1)   Jul (1)

Consumer goods sales         5.0    5.5     5.8      5.6      -0.5
(Seasonally adjusted) (2)   -1.3    2.3     1.5      1.1      -5.0
  --Durable goods (3)       10.8    8.9     8.2     13.1      -2.1
    * Automobiles           22.6    8.1     9.9      3.8     -18.0
  --Semi-durable goods (4)   7.4    6.8     7.3      3.9       2.1
  --Non-durable goods (5)    1.2    3.0     3.7      2.6      -0.9

(1.) Preliminary

(2.) Percentage change from previous period

(3.) Durable goods (25.4%): Automobiles, electronic appliances,
furniture, telecommunications devices, etc.

(4.) Semi-durable goods (24.0%): Clothing, footwear, etc.

(5.) Non-durable goods (50.5%): Food, medicine, cosmetics, fuel,
tobaccos, etc.


Department store and large discount store sales continued the upward trend while other retail store sales were sluggish.
(Percentage change from same period in previous year)

                                       2005

                          Q1     Q2    Jul    Q4     Annual

--Department stores       -1.4   0.8   2.1    8.2    3.1
--Large discount stores   6.7    7.7   8.5    11.6   8.3
--Other retail stores     -0.8   1.2   -1.1   0.1    -0.1

                                           2006

                          Q1     Q2 (1)   May    Jun (1)   Jul (1)

--Department stores       7.9    5.6      5.3    4.5       2.0
--Large discount stores   6.4    9.0      10.1   7.0       7.3
--Other retail stores     -3.0   -0.2     -0.4   1.6       -1.2

(1) Preliminary


[2-1] Private consumption

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[2-2] Consumer goods sales

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[2-3] Consumer goods sales by type

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Preliminary consumption indicators in August pointed a mixed trend affected by temporary factors including changes in the department stores' sales promotion period and auto workers' strikes.

Department store sales slightly slowed due to change in sales promotion period from August 26 to 31 last year to September 1 to 6 this year. Meantime, sales at large discount outlets and the value of credit card use further expanded.

Value of credit card use (y-o-y, %)

15.6 (Apr 2006) ([right arrow]) 16.3 (May) ([right arrow]) 14.6 (Jun) ([right arrow]) 11.2 (Jul) ([right arrow]) 15.7 (Aug)

Source: The Credit Finance Association

Discount store sales (y-o-y, %)

3.1 (Apr 2006) ([right arrow]) 2.6 (May) ([right arrow]) 0.9 (Jun) ([right arrow]) 0.5 (Jul) ([right arrow]) 5.8 (Aug)

Department store sales (y-o-y, %)

8.2 (Apr 2006) ([right arrow]) 7.6 (May) ([right arrow]) 7.1 (Jun) ([right arrow]) 3.0 (Jul) ([right arrow]) -1.71 (Aug)

(1.) The sales increased 11.2 percent factoring in sales between August 1 and 25 only.

Source: Ministry of Commerce, Industry and Energy

Ministry of Finance and Economy (August 2006, monitoring results on current sales volume basis)

Decline in domestic sales of home-manufactured automobiles moderated by a large margin from the previous month helped by the resolution of labor strikes in Hyundai Motor Company.

Domestic sales of home-manufactured automobiles

(thousand units): 90 (Apr 2006) ([right arrow]) 93 (May) ([right arrow]) 101 (Jun) ([right arrow]) 75 (Jul) ([right arrow]) 90 (Aug) (y-o-y, %): -4.0 (Apr 2006) ([right arrow]) 1.7 (May) ([right arrow]) -0.9 (Jun) ([right arrow]) -26.1 (Jul) ([right arrow]) -0.8 (Aug)

Household consumer confidence continued to be sluggish.

Consumer expectations index (base=100)

104.5 (Jan 2006) ([right arrow]) 103.8 (Feb) ([right arrow]) 103.4 (Mar) ([right arrow]) 100.6 (Apr) ([right arrow]) 98.0 (May) ([right arrow]) 97.4 (Jun) ([right arrow]) 94.3 (Jul)

Source: Korea National Statistical Office

Private consumption will likely prolong its stable upward track despite temporary dragging-down factors in July. Household income has gradually improved backed up by expanded growth in real GNI and real household income during the second quarter.
Income and employment indicators

(Growth rate, %)

                                         2002   2003   2004

Real GNI                                 7.0    1.9    3.9
Real household income (urban workers)    3.6    1.7    2.2
Changes in number of employed            597    -30    418
  (y-o-y, thousand)

                                                   2005

                                         Q1    Q2     Q3    Q4

Real GNI                                 0.4   0.1    0.3   1.2
Real household income (urban workers)    1.9   1.6    0.6   2.3
Changes in number of employed            143   382    379   292
  (y-o-y, thousand)

                                            2006

                                         Q1     Q2

Real GNI                                 1.3    2.1
Real household income (urban workers)    2.3    4.0
Changes in number of employed            331    283
  (y-o-y, thousand)


[2-4] Department store and discount store sales (current value)

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[2-5] Domestic automobile sales

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[2-6] Consumer expectations index and present situation index

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3 Facility investment

Facility investment in the second quarter of 2006 (preliminary GDP) increased 7.4 percent from the same period of previous year, led by bolstered machinery investments in large scale. Its growth pace has been accelerated from the previous quarter, posting an on-quarter 2.5 percent increase.
(Percentage change from same period in previous year)

                                            2005 (1)

                               Q1      Q2      Q3     Q4    Annual

Facility investment (2)        2.9     2.7    4.3    10.2    5.1
(Seasonally adjusted) (3)      2.3     2.4    0.8    4.2      --
  --Machinery                  7.2     6.0    4.7    9.3     6.8
  --Transportation           -14.4   -10.5   2.4    15.1    -2.7
    equipment

                               2006 (1)

                               Q1     Q2

Facility investment (2)       6.9    7.4
(Seasonally adjusted) (3)    -0.4    2.5
  --Machinery                 3.2    9.7
  --Transportation           25.7   -3.6
    equipment

(1) Preliminary  (2) National accounts
(3) Percentage change from previous period


Facility investment in July (estimated index) posted an on-year 4.2 percent increase helped by increased investment in computers and special industrial machinery.

Domestic machinery shipments, however, fell 6.3 percent year on year, reversing the course to a negative territory.

Machinery orders, a leading indicator of facility investment, took downward turn. Nonetheless, facility investment is likely to stay with an upward trend as machinery imports maintain a growth trend.

Domestic machinery orders (current value basis) in July posted an on-year 2.7 percent decrease led by decrease in public sector orders centering on the electric power industry. On the other hand, the machinery imports surged 17.2 percent.
(Percentage change from same period in previous year)

                                            2005

                              Q1     Q2      Jul     Q4    Annual

Estimated facility           3.9     1.4     4.3    7.0     3.4
    investment (2)
  --Domestic machinery       -0.3   -1.1     4.6    1.8     0.6
    shipments
Domestic machinery orders    -6.9   -12.2   26.2    17.5    1.5
  --Public                   7.8    -51.3   179.8   17.1    -3.1
  --Private                  -8.4   -7.1    17.8    17.6    2.0

                                           2006

                           Q1     Q2 (1)    May    Jun (1)

Estimated facility         4.3     4.2      2.5      3.0      4.2
    investment (2)
  --Domestic machinery     4.9     4.0      9.2      1.7     -6.3
    shipments
Domestic machinery        11.2     20.9    12.6     34.8     -2.7
    orders
  --Public                -57.9    43.3    -16.5    160.9    -68.2
  --Private               19.9     19.3    14.4     25.0      5.9

(1) Preliminary  (2) Industrial activity


Machinery imports (%)

25.1 (Mar 2006) ([right arrow]) 22.9 (Apr) ([right arrow]) 14.6 (May) ([right arrow]) 7.8 (Jun) ([right arrow]) 17.2 (July) ([right arrow]) 6.1 (Aug 1~20)

The Business Survey Index (BSI) for facility investment result in the manufacturing sector compiled by the Bank of Korea, remained unchanged while BSI for facility investment prospect marginally decreased from the previous month.
Business Survey Index (base=100)

                                         2006

                          Apr     May   Jun   Jul    Aug   Sep

Manufacturing facility    99      100   98    98     98    --
  investment result
Manufacturing facility    1 101   101   98    99     98    98
  investment prospect

Source: The Bank of Korea


[3-1] Facility investment by type

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[3-2] Machinery orders and estimated facility investment (3-month average)

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[3-3] Machinery imports

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4 Construction investment

Construction investment in the second quarter of 2006 (preliminary GDP) was down 3.9 percent from the same period in previous year. This is attributable to substantial decline in building construction and decrease in civil engineering works.
(Percentage change from same period in previous year)

                                             2005 (1)

                                 Q1     Q2     Q3    Q4    Annual

Construction investment (2)      2.2    1.6   0.3    0.9     0.4
(Seasonally adjusted) (3)       10.4    1.8  -0.8    0.0      --
  --Building construction        6.4    0.6  -0.5    1.3    -1.0
  --Civil engineering works      6.8    3.1   1.5    0.4     2.4

                                 2006 (1)

                                 Q1     Q2

Construction investment (2)     1.2    -3.9
(Seasonally adjusted) (3)       0.6    -3.9
  --Building construction       2.0    -5.9
  --Civil engineering works    -0.3    -1.2

(1) Preliminary  (2) National accounts
(3) Percentage change from previous period


Domestic construction completed (current value) in July registered an on-year -0.7 percent growth affected largely by the rainy season.
(Percentage change from same period in previous year)

                                               2005

                               Q1       Q2     Jul     Q4    Annual

Construction completed (2)     1.9     9.6     4.5    6.9     5.7
  --Construction              -0.1     9.7     3.6    5.3     5.1
  --Civil engineering works    6.4     10.1    6.7    9.8     7.3

                                               2006

                               Q1    Q21    May    Jun (1)   Jul (1)

Construction completed (2)    5.8    1.4    1.0      1.1      -0.7
  --Construction              6.5    0.2    -1.5     0.1      -0.9
  --Civil engineering works   4.4    4.1    6.6      3.7      -0.2

(1) Preliminary

(2) Industrial activity


Construction investment-related leading indicators seem to have improved following the introduction of infrastructure cost sharing system in effect from July 12. Domestic construction orders (current value basis) in July rebounded to post positive growth while the building construction permit area surged by a large margin.
(Percentage change from same period in previous year)

                                      2005

                         Q1     Q2     Jul     Q4     Annual

Construction orders     22.3   38.5    6.3    -17.9    9.5
Building construction   0.6    -0.6   -20.2   -8.2     -5.1
  permit area

                                          2006

                         Q1     Q2 (1)    May    Jun (1)   Jul (1)

Construction orders     -9.7    -14.1    -17.9    -7.7       7.3
Building construction   13.0     7.4     -21.1    64.9      161.9
  permit area

(1) Preliminary


The Business Survey Index (BSI) for construction investment result compiled by the Construction and Economy Research Institute of Korea, continued deterioration for three consecutive months, but the BSI prospect bettered after rising in the previous month.
Business Survey Indexes (base=100)
                                                 2006

                                   May    Jun    Jul    Aug    Sep

Construction investment result     79.1   55.7   45.6   37.8    --
Construction investment prospect   93.1   80.9   61.3   73.6   77.4

Source: The Construction and Economy Research Institute of Korea


Overall, the downward trend in construction, concentrated in the private sector, is to continue for the time being. However, as the role of the public sector (fiscal execution, public rental housing, etc.) is expected to progressively expand in the second half, it is projected to compensate the sluggishness in construction to a certain extent.

[4-1] Construction investment

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[4-2] Construction completed and housing construction

[GRAPHIC OMITTED]

[4-3] Leading indicators of construction investment

[GRAPHIC OMITTED]

5 Exports and imports (customs clearance basis)

August exports further expanded by 18.7 percent from a year earlier amid strong global demand along with gradual removal of irregular factors such as auto workers' strikes and days operated.

Average daily exports maintained robustness with US$1.15 billion.

By export category (estimated, Ministry of Commerce, Industry and Energy), petroleum goods (up 65.3 percent), semiconductors (up 19.4 percent) and steels (up 29.0 percent) made fair gains. The pace of decline in automobiles exports also substantially decelerated from -29.2 percent in July to -1.1 percent in August.
(US$ billion)

                                      2005

                         Jun     Jul     Aug    Jan-Aug

Exports 1               23.71   23.24   23.34   183.09
  (y-o-y, %)             9.5    10.6    17.9     11.6
Average daily exports   1.03    0.99    0.97     1.01

                                      2006

                         Jun     Jul     Aug    Jan-Aug

Exports 1               27.96   26.02   27.71   209.10
  (y-o-y, %)            17.9    12.0    18.7     14.2
Average daily exports   1.22    1.16    1.15     1.14


August imports posted US$27.09 billion with an on-year increase of 23.1 percent on the back of rising raw materials prices including oil.

Imports of raw materials recorded a high growth pace centering on oil and steel. Imports of consumer and capital goods also maintained the upward track.

Raw materials (%)

32.7 (Feb 2006) ([right arrow]) 11.6 (Mar) ([right arrow]) 13.1 (Apr) ([right arrow]) 28.2 (May) ([right arrow]) 30.2 (Jun) ([right arrow]) 24.0 (Jul) ([right arrow]) 17.5 (Aug 1~20)

Capital goods (%)

19.4 (Feb 2006) ([right arrow]) 13.4 (Mar) ([right arrow]) 12.8 (Apr) ([right arrow]) 13.1 (May) ([right arrow]) 9.4 (Jun) ([right arrow]) 9.6 (Jul) ([right arrow]) 3.2 (Aug 1~20)

Consumer goods (%)

26.9 (Feb 2006) ([right arrow]) 19.8 (Mar) ([right arrow]) 20.1 (Apr) ([right arrow]) 22.6 (May) ([right arrow]) 22.0 (Jun) ([right arrow]) 17.4 (Jul) ([right arrow]) 7.3 (Aug 1~20)
(US$ billion)

                                     2005

                         Jun     Jul    Aug    Jan-Aug

Imports                 21.29   21.51    22    167.83
  (y-o-y, %)            14.8     17     21.4    16.1
Average daily exports   0.93    0.92    0.92    0.92

                                     2006

                         Jun     Jul     Aug    Jan-Aug

Imports                 25.96   25.42   27.09    201.0
  (y-o-y, %)            22.0    18.2    23.1     19.8
Average daily exports   1.13    1.13    1.13     1.10


Trade balance (customs clearance basis) in August achieved a mere US$0.62 billion surplus due to growth acceleration in imports despite robust exports.
(US$ billion)

                            2005

                Jun    Jul    Aug    Jan-Aug

Trade balance   2.42   1.73   1.34    15.26

                            2006

                Jun   Jul   Aug    Jan-Aug

Trade balance   2.0   0.6   0.62     8.1


Exports in September are likely to continue a double digit growth driven by the increasing exports in the end of the quarter and the expiration of the summer holiday season.

[5-1] Exports (customs clearance basis)

[GRAPHIC OMITTED]

[5-2] Imports (customs clearance basis)

[GRAPHIC OMITTED]

[5-3] Trade balance

[GRAPHIC OMITTED]

6 Industrial activity

Despite robust semiconductors, industrial production in July gained a mere on-year 4.4 percent affected by the decreased days operated, production disruption due to auto workers' strikes and rainy season and heavy rain-caused contraction in the construction and other pertinent business activities.

Production index edged up 7.4 percent year on year after factoring in the actual days operated.

Excluding the automobile sector, industrial production posted an on-year 7.9 percent increase.

The manufacturing operation ratio stood at 76.9 percent, down 5.1 percentage points from the previous month. This was mainly due to labor strikes in the automobile sector and heavy rainfalls which dragged down the operation ratio of automobiles and non-metal mineral products.

Shipment growth significantly slowed due to sluggish domestic demand despite robust exports. Meantime, the inventory level continued a growth trend in line with the level of previous month.

Inventory circulation was in a slightly irregular shape as shipments growth significantly decreased influenced by labor strikes in the automobile sector while inventory witnessed growth at a similar rate with the previous month.
(Percentage change from same period in previous year)

                                          2005

                               Q2    Jul     Q4    Annual

Industrial production index   3.5    7.0    10.3    6.3
  --Semiconductors            12.1   24.4   41.9    24.8
  --Automobiles               11.1   20.5   8.9     8.4
  (Seasonally adjusted) (2)   0.0    0.7    5.5      --
Average operation ratio (%)   79.6   80.9   80.2    79.8
Shipment                      3.5    6.5    8.6     5.6
  --Domestic demand           1.0    5.5    5.5     2.3
  --Exports                   7.3    8.0    12.9    10.3
Total producer inventory      8.9    9.1    2.4     2.4

                                           2006

                               Q1    Q2 (1)   Jun (1)   Jul (1)

Industrial production index   12.0   10.9      10.9       4.4
  --Semiconductors            39.8   42.0      41.1      37.5
  --Automobiles               15.4   8.4        4.7      -28.9
  (Seasonally adjusted) (2)   3.1    -0.4       1.2      -3.9
Average operation ratio (%)   82.0   80.5      82.0      76.9
Shipment                      9.1    8.4        7.6       1.3
  --Domestic demand           6.7    4.7        4.1      -6.3
  --Exports                   12.4   13.7      12.6      11.9
Total producer inventory      3.7    7.2        7.2       7.1

(1) Preliminary

(2) Percentage change from previous period


Without other factors at play, industrial output in August is projected to rebound to the June level taking into account solid export growth.

[6-1] Industrial production

[GRAPHIC OMITTED]

[6-2] Average manufacturing operation ratio

[GRAPHIC OMITTED]

[6-3] Inventory

[GRAPHIC OMITTED]

7 Service sector activity

Service sector activity in July slowed to post an on-year growth of 2.1 percent, down from 4.3 percent in the previous month. The slowdown was attributable to temporary factors such as auto workers' strikes and heavy rainfall. Service output declined 1.4 percent month on month following 0.1 percent fall in June.

By sector, growth pace moderated in wholesale and retail sector as well as in financial and insurance services, whereas entertainment, cultural and sports services took downturn.
(Percentage change from same period in previous year)

                                           2005

                              Weight   Jul     Q4    Annual

Service industry activity     100.0    4.6    5.8     3.6
  index.
(Seasonally adjusted) (3)       --     0.2    1.6      --
  --Wholesale & retail         27.6    2.3    3.4     1.9
  --Hotels & restaurants       7.7     -0.7   3.0     0.3
  --Transportation             8.8     4.8    5.4     4.2
  --Communication services     5.8     1.8    4.7     4.1
  --Financial & insurance      17.6    12.0   13.9    7.3
      services
  --Real estate & renting      5.4     9.2    9.2     8.5
  --Business services          8.5     0.5    4.7     2.8
  --Educational services       8.6     3.7    -0.2    0.7
  --Healthcare & social        4.0     8.2    9.4     7.3
      welfare services
  --Entertainment, cultural    3.5     4.7    4.4     3.0
      and sports services
  --Other public & personal    2.6     2.1    3.3     1.9
      services

                                           2006

                               Q1    Q2 (1)   May    Jun (1)

Service industry activity     6.1     5.3     5.7      4.3
  index.
(Seasonally adjusted) (3)     1.3     0.7     0.2     -0.1
  --Wholesale & retail        3.3     3.8     4.1      3.8
  --Hotels & restaurants      3.9     2.4     2.3      1.5
  --Transportation            6.4     6.3     7.6      5.1
  --Communication services    2.3     2.9     2.0      2.6
  --Financial & insurance     13.2    9.3     9.8      6.2
      services
  --Real estate & renting     10.5    8.4     7.9      7.6
  --Business services         5.8     6.1     6.0      6.3
  --Educational services      1.3     2.2     3.3      1.2
  --Healthcare & social       11.2    7.6     11.2     5.0
      welfare services
  --Entertainment, cultural   4.9     2.7     2.7      2.9
      and sports services
  --Other public & personal   4.7     4.1     4.7      4.5
      services

                               2006

                              Jul (1)   Contribution (2)

Service industry activity       2.1           1.95
  index.
(Seasonally adjusted) (3)      -1.4            --
  --Wholesale & retail          0.9           0.02
  --Hotels & restaurants        0.1           0.01
  --Transportation              4.3           0.38
  --Communication services      2.2           0.13
  --Financial & insurance       2.5           0.44
      services
  --Real estate & renting       4.3           0.23
  --Business services           4.7           0.40
  --Educational services        0.9           0.08
  --Healthcare & social         9.2           0.37
      welfare services
  --Entertainment, cultural    -4.6          -0.16
      and sports services
  --Other public & personal     2.0           0.05
      services

(1) Preliminary

(2) Contribution to July growth (%p)

(3) Percentage change from previous period


Service sector growth in August is expected to slightly expand with the gradual removal of one-off factors. Growth is likely to gather pace in August led by amelioration in the negative factors such as strikes and heavy rainfalls despite high comparison base set from robust service activities since the second half of the last year.

[7-1] Service industry

[GRAPHIC OMITTED]

[7-2] Wholesale and retail sales

[GRAPHIC OMITTED]

[7-3] July 2006 service industry by business

[GRAPHIC OMITTED]

8 Employment

The number of workers on the payroll in July increased 263,000 year on year, standing below the trend growth, affected by deteriorating weather conditions such as typhoon. The average number of employed during the first seven months in the year expanded by 300,000 from a year earlier.

The number of employed in the service sector maintained robust gains with an increase of 391,000 in July. Jobs growth in business services such as R&D, engineering, judicial scriveners and tax accountants reached 133,000 having exceeded the 100,000 level for the fifth consecutive month, way above 79,000 increase last year. Wholesale and retail sales continued the downward trend with a decrease of 37,000 as restructuring is underway in the small retail sector, while hotels and restaurants edged up 2,000 in July posting the fifth consecutive monthly increase.

Employment in the manufacturing sector fell by 53,000 in July with progress being made in informatization and technology enhancement. The decline, however, has decelerated for four months in a row, gradually reflecting the economic performance in time lag.

Hiring was further deteriorated in the construction (down 19,000) due mainly to bad weather condition from typhoon and sluggishnes in the construction completed. Agricultural, forestry and fishery sectors accelerated the decline (down 57,000) in July.

Both the unemployment rate and the youth unemployment rate fell 0.3 percentage point in July to 3.4 and 8.0 percent year on year, respectively. The youth unemployment was temporarily up 0.2 percentage point in June affected by the street-cheering during the 2006 World Cup. However, both rates have shown downward stabilization this year with marginal drop of 0.2 to 0.3 percentage point year-on-year.
(Change from same period in previous year, thousand)

                                          2005

                             Jul     Q3       Q4      Annual

Employment growth            434     379     293       299
  --Agriculture, forestry    81      32      -36        -9
      and fishery
  --Manufacturing            -79     -78     -77       -56
  --Construction             85      47      -32        -5
  --Services                 345     376     436       368
Unemployment rate (%)        3.7     3.6     3.5       3.7

                                           2006

                             Q1      Q2     May     Jun     Jul

Employment growth            331     283    286     255     263
  --Agriculture, forestry    -34     -65    -60     -50     -57
      and fishery
  --Manufacturing            -72     -77    -79     -68     -53
  --Construction             34       7      5      -15     -19
  --Services                 403     419    420     388     391
Unemployment rate (%)        3.9     3.4    3.2     3.4     3.4


The number of employed is projected to increase further in the second half than in the first half. If there are no irregular factors such as the bad weather, it is projected that the positive factors get translated into the employment growth. Positive factors include a better base effect stemming from a relatively low employment growth a year ago and a larger scale fiscal expenditure planned for the second half. Employment usually reflects the economic performance in time lag, which is also a factor that boots prospect for the job market in the second half.

[8-1] Number of employed and employment growth

[GRAPHIC OMITTED]
[8-2] Share of employed by industry

                           1990   1991   1992   1993   1994   1995

Manufacturing and mining   27.6   28.0   26.5   24.8   24.2   23.7
Service industry           47.1   48.9   50.6   52.8   54.2   55.1
Agriculture, forestry      17.9   14.6   14.0   13.5   12.6   11.8
  and fisheries
Construction               7.4    8.5    8.9    8.9    9.1    9.4

                           1996   1997   1998   1999   2000   2001

Manufacturing and mining   22.8   21.5   19.7   19.9   20.4   19.9
Service industry           56.6   58.2   60.3   61.4   61.6   62.8
Agriculture, forestry      11.1   10.8   12.0   11.3   10.6   10.0
  and fisheries
Construction               9.5    9.6    7.9    7.3    7.5    7.3

                           2002   2003   2004   2005   Jan-Jul
                                                        2006

Manufacturing and mining   19.2   19.1   19.1   18.6    18.2
Service industry           63.6   63.9   64.8   65.5    66.3
Agriculture, forestry      9.3    8.8    8.1    7.9      7.6
  and fisheries
Construction               7.9    8.2    8.1    7.9      7.9

Source: Korea National Statistical Office (employment trend)

Note: Table made from bar graph.


[8-3] Unemployment rate and number of unemployed

[GRAPHIC OMITTED]

9 Financial markets

9.1 Stock market

The Korean stock market in August closed at 1,352.74 points indicating upward trend.

The KOSPI fell in early August due to rising oil prices and uncertainty concerning additional interest rate hikes by the US. The index, however, shifted to the upward trend after mid-August amid oil price stabilization and expectations of a halt in the US interest rate.

The KOSDAQ, after fluctuating in the absence of a tangible upward momentum, slightly inched up centering on the communications and IT stocks to close the month at 572.83 points.

In August, net selling by foreign and individual investors amounted to 2,447.4 billion won and 697.9 billion won, respectively, while net buying by institutional investors was 2,295.7 billion won.
(End-period, point, trillion won)

                                          KOSPI

                         2005     Jul 2006   Aug 2006    Change (1)

Stock price index       1,379.4   1,297.8    1,352.7    -26.7 (1.9%)
Market capitalization    655.1     636.3      664.9     -9.8 (1.5%)
Average daily trade       3.2       2.6        2.7      -0.5 (15.6%)
  value

                                          KOSDAQ

                        2005    Jul 2006   Aug 2006     Change (1)

Stock price index       701.8    557.7      572.8     -129.0 (18.4%)
Market capitalization   70.9      58.1       64.2      -6.7 (9.4%)
Average daily trade      1.8      1.1        1.3       -0.5 (27.8%)
  value

(1) Change from the end of previous year


9.2 Exchange rate

The won/dollar exchange rate fluctuated within the narrow band of mid 950 to mid 960 won level in August to close the month at the lower 960 won range.

At the beginning of the month, the won/dollar exchange rate fell to the 957 won range on August 10 with the dollar's depreciation from the FRB's decision of halting the federal funds rate coupled with a rate lift by ECB.

In the middle of the month, the exchange rate rose up to the 965 won range on August 14 on the back of factors supporting a stronger dollar, such as the narrowed US trade deficit.

The won/dollar exchange rate thereafter moved marginally centering on the 960 won range to close the month at 961.5 won.
(End-period)

               2004      2005

               Dec       Dec

Won/Dollar   1,035.1   1,011.6
Yen/Dollar    102.5    117.8 1

                              2006

              May     Jun     Jul     Aug    Change (1)

Won/Dollar   945.6   948.9   955.2   961.5      5.2
Yen/Dollar   112.0   114.5   114.3   117.3      0.4

(1) Appreciation from the end of previous year (%);
the value of Korean won is based on closing price
at 3:00 p.m.


[9-1] Stock prices

[GRAPHIC OMITTED]

[9-2] Foreign exchange rate (month-end)

[GRAPHIC OMITTED]

[9-3] Recent foreign exchange rate

[GRAPHIC OMITTED]

9.3 Bond market

Despite the Bank of Korea (BOK)'s benchmark call rate hike by 25 basis points on August 10, bond yields, such as the Treasury bond yields, have maintained the downward trend for two consecutive months in August with prospected economic slowdown in the second half and expectations of no further rate increase within the year.

Meantime, short-term interest rates such as call rates increased at the same pace with the benchmark rate rise whereas yields on 3-month CDs made marginal increase.
(End-period)

                                2005

                         Jun    Sep    Dec

Call rate (1 day)        3.27   3.25   3.75
CD (91 days)             3.54   3.93   4.09
Treasury bonds (3 yr)    4.02   4.60   5.08
Corporate bonds (3 yr)   4.41   5.00   5.52
Treasury bonds (5 yr)    4.25   4.83   5.36

                                            2006

                         Apr    May    Jun    Jul    Aug    Change (1)

Call rate (1 day)        3.97   3.96   4.21   4.22   4.49       74
CD (91 days)             4.36   4.36   4.59   4.64   4.68       59
Treasury bonds (3 yr)    4.81   4.72   4.92   4.83   4.76      -32
Corporate bonds (3 yr)   5.08   5.00   5.20   5.15   5.09      -43
Treasury bonds (5 yr)    4.98   4.87   5.04   4.93   4.82      -54

(1) Basis point change from end December 2005


9.4 Money supply & money market

M2 growth in July moderated from a month earlier as money redemption in the overseas sector expanded while credit based financing in the private sector such as bank loans decelerated its downturn. M1 continued to be on the downhill.
(Percentage change from same period in
previous year, average)

                     2005

         Q1    Q2     Q3    Q4

M1 (2)   8.1   9.9   13.5   2.6
M2       6.5   7.1   7.4    6.7
Lf (3)   6.7   6.8   7.3    7.1

                       2006

          Q1     Q2    Jun     Jul (1)

M1 (2)   -0.6   -2.8   -3.0   Around -4
M2       7.0    7.2    7.7     Lower 7
Lf (3)   7.2    7.4    7.3    Around 7

(1) Estimates (2) Excludes corporate MMF
as it is redeemable on and after the next
business day following the transaction date
from November 2005.
(3) Liquidity aggregates of financial
institutions (mostly identical with M3)


In July, bank deposits decreased substantially as settlement deposits (referring to demand deposits and MMDA) were down due to VAT payments while growth in time deposits slowed with the end of special offer of higher interest earning.

Asset management company (AMC) receipts reversed course to post a slight increase in July as equity-linked derivatives and equity funds expanded, offsetting decrease in short-term bond funds and money market funds (MMFs).
(Monthly change, end-period, trillion won)

                                2005

                Jul    Aug    Sep    Oct    Nov   Dec

Bank deposits   -3.1   1.4   10.1    -3.2   1.7   5.4
AMC receipts    8.6    0.9   -13.0   1.6    3.1   2.1

                                2006

                Feb   Mar   Apr    May    Jun    Jul

Bank deposits   6.3   2.3   2.1    6.2   10.9    -7.2
AMC receipts    6.2   6.9   1.3    9.9   -11.7   0.3


[9-4] Interest rates

[GRAPHIC OMITTED]

[9-5] Total money supply

[GRAPHIC OMITTED]
[9-6] Share of deposits by financial sector (M3 as of year-end)

             1990   1991   1992   1993   1994   1995   1996   1997

Others       8.9    8.4    8.2    7.4    8.1    7.1    6.1    6.2
Investment   15.5   16.8   17.6   18.0   17.5   17.2   17.8   17.3
  trust
Retail       14.0   14.7   14.3   13.5   12.6   12.8   13.2   13.2
  finance
Bank trust   10.8   9.9    10.1   11.0   10.7   9.5    9.0    9.4
Insurance    13.4   13.3   15.7   17.3   18.2   20.6   20.9   20.8
Bank         37.4   36.9   34.1   32.8   33.0   32.7   33.0   33.0

             1998   1999   2000   2001   2002   2003   2004

Others       5.8    6.1    6.0    6.4    6.2    6.4    6.1
Investment   17.7   16.8   16.5   16.2   15.3   15.9   16.8
  trust
Retail       11.8   12.2   13.0   12.8   13.2   13.9   14.6
  finance
Bank trust   17.1   14.5   9.8    9.0    9.8    7.3    9.2
Insurance    14.7   11.2   7.6    7.0    5.5    4.1    3.3
Bank         32.9   39.3   47.2   48.6   50.0   52.5   50.0

Source: The Bank of Korea

Note: Table made from bar graph.

* Retail finance: Mutual savings bank & National Credit Union
Federation of Korea, Others: Investment banks, post office savings,
etc.


10 Balance of payments

The current account recorded a US$0.21 billion deficit in July. The accumulated figure for the first seven months posted a US$0.64 billion deficit.

The goods account surplus scaled back by US$0.91 billion from the previous month to US$1.8 billion due mainly to auto workers' strikes.

The service account deficit widened to US$1.74 billion, up US$0.56 billion from the previous month as payments of overseas travel expenses increased during the summer season. The travel account deficit expanded from the previous month to US$1.24 billion while the transportation account surplus narrowed to US$0.18 billion as ocean freight revenue decreased due to slowed exports.

Travel balance (US$ billion)

-0.86 (May 2005) ([right arrow]) -0.89 (Jun) ([right arrow]) -1.01 (Jul); -0.89 (May 2006) ([right arrow]) -1.05 (Jun) ([right arrow]) -1.24 (Jul)

Transportation balance (US$ billion)

0.28 (May 2005) ([right arrow]) 0.34 (Jun) ([right arrow]) 0.21 (Jul); 0.17 (May 2006) ([right arrow]) 0.32 (Jun) ([right arrow]) 0.18 (Jul)

Meantime, the income account returned to positive territory recording a US$0.04 billion surplus led by a decrease in overseas dividend payouts.

The seasonally adjusted current account recorded a US$0.78 billion deficit in July while that in the first seven months of the year posted a US$0.35 billion surplus.
(US$ billion)

                                        2005

                         May     Jun     Jul    Jan-Jul

Current account         1.36    2.24    1.45     9.93
(Seasonally adjusted)   0.55    1.71    1.26     10.79
 --Goods balance        2.61    3.70    3.17     20.96
 --Service balance      -1.17   -1.12   -1.47    -7.71
 --Income balance       0.15    -0.12   -0.07    -1.91

                                        2006

                         May     Jun     Jul    Jan-Jul

Current account         1.36    0.94    -0.21    -0.64
(Seasonally adjusted)   1.19    0.27    -0.78    0.35
 --Goods balance        2.82    2.71    1.80     14.44
 --Service balance      -1.35   -1.18   -1.74   -10.62
 --Income balance       0.39    -0.16   0.04     -2.09


The capital and financial account balance realized a net inflow of US$1.73 billion in July due to increased short-term borrowings from overseas by deposit money banks despite the withdrawal of foreign capitals invested in domestic stocks.

Capital & financial account balance (US$ billion)

0.80 (May 2005) ([right arrow]) -1.28 (Jun) ([right arrow]) -0.78 (Jul); 0.51 (May 2006) ([right arrow]) -1.69 (Jun) ([right arrow]) 1.73 (Jul)

The current account balance in August may record a deficit as surplus computed by the export-import gap on the customs-clearance basis posted a mere US$0.62 and overseas travels increased during the summer vacation.

[10-1] Current account balance

[GRAPHIC OMITTED]

[10-2] Travel balance

[GRAPHIC OMITTED]

[10-3] Capital & financial account balance

[GRAPHIC OMITTED]

11 Prices and international commodity prices

11.1 Prices

Consumer prices maintained the stable 2 percent range in August despite slight acceleration of on-year 2.9 percent rise.
Consumer price inflation

                     2005               2006

                     Aug    Apr   May   Jun    Jul   Aug

Month-on-Month (%)   0.4    0.1   0.2   -0.2   0.2   0.9
Year-on-Year (%)     2.5    2.0   2.4   2.6    2.3   2.9


Prices of oil products and some vegetables such as radishes and Chinese cabbages increased significantly, and public utility charges including city gas fees and taxi fares rose sharply as well. However, housing rents and personal services charges stabilized compared with the past years.

Consumer price inflation of major items in Aug 2006 (y-o-y, %)

Chinese cabbage: 55.1, Radish: 10.4, Diesel: 13.0, City gas: 17.4,Taxi fares: 8.7
Consumer price inflation in major sectors

(Percentage change from same period in previous year)

                  Total    Agricultural,     Industrial      Oil
                            livestock &       products     products
                          fishery products

Aug 2006           2.9       2.3 (0.34)      2.8 (0.93)   6.4 (0.42)
  (Contribution
  ratio, %p)
Aug average        3.4          6.1                          5.5
  2001-2005

                    Public      Housing       Personal
                   utility      rents         services

Aug 2006          0.6 (0.08)   4.4 (0.64)    3.6 (0.98)
  (Contribution
  ratio, %p)
Aug average          2.9          2.8           3.7
  2001-2005


Core inflation, excluding volatile food and energy costs, stabilized with an increase of a mere on-year 2.2 percent. Consumer price inflation for basic necessities, a barometer of perceived consumer prices, rose 3.8 percent from a year earlier.
(Percentage change from same period in previous year)

                               2005                    2006

                      Aug   Nov   Dec   Annual   Jun   Jul   Aug

Core inflation        1.9   1.9   1.9   2.3      2.2   2.2   2.2
Consumer prices for   2.8   3.3   3.7   4.1      3.4   2.9   3.8
  basic necessities


Consumer prices in September are projected to rise slightly affected by increasing prices of agricultural, livestock and fishery products ahead of Chuseok (Chinese Harvest Moon Festival). The expected markup of public utility charges such as city gas fees, express and cross-country bus fares might push up the prices as well. However, consumer prices are expected to maintain the stable below 3 percent level year on year.

[11-1] Prices

[GRAPHIC OMITTED]

[11-2] Consumer price inflation

[GRAPHIC OMITTED]

[11-3] Contribution to consumer price inflation

[GRAPHIC OMITTED]

11.2. International oil and commodity prices

International oil prices have turned to a stable trend after posting a record high in early August due to the political uncertainties in the Middle East and the British Petroleum's announcement of closing oil fields in Alaska.

The prices fell slightly from the previous month due to the ceasefire between Israel and Lebanon and better weather conditions. International oil prices in September may be influenced by the future developments of geopolitical unrest such as Iran's nuclear threat and by the weather conditions including possible Hurricanes. The price of gasoline and diesel in August slightly rose from the previous month affected by international oil price hikes.

Record high oil prices in 2006 (spot prices, US$/barrel)

Dubai crude: 72.2 (Aug 8) Brent crude: 78.7 (Aug 8) WTI crude: 77.0 (Aug 7)
(Period average)

                                   2004     2005

                                  Annual   Annual

Dubai crude (US$/barrel)           33.6     49.4
Brent crude (US$/barrel)           38.2     54.3
WTI crude (US$/barrel)             41.4     56.5
Gasoline prices (won/liter) (1)   1,295    1,365
Diesel prices (won/liter) (1)      908     1,080

                                           2006

                            Apr     May     Jun     Jul     Aug

Dubai crude (US$/barrel)   64.2    65.2    65.2    69.2    68.9
Brent crude (US$/barrel)   70.5    69.8    68.5    73.7    73.1
WTI crude (US$/barrel)     69.6    70.9    70.9    74.4    73.0
Gasoline prices            1,504   1,543   1,540   1,543   1,546
  (won/liter) (1)
Diesel prices              1,211   1,251   1,250   1,295   1,299
  (won/liter) (1)

(1) Source: Korea National Oil Corporation


International commodity prices in August rose from the previous month as prices of nonferrous metals remained relatively high albeit overall decrease in prices of agricultural products.

Prices of most non-ferrous metals excluding aluminum continued to rise in August affected by concerns on possible supply shortage arising from the mine strike and the lower inventory level. Prices of most agricultural products fell on the good harvest on the back of the favorable weather conditions, whereas the prices of coffee and raw cotton rose due to the adverse weather condition and the reduced output.

Price increases in August (monthly average, m-o-m, %)

Nickel (12.4); lead (11.3); coffee (8.1); raw cotton (3.2)

Price decreases in August (monthly average, m-o-m, %)

Raw sugar (-15.1); natural rubber (-13.0); aluminum (-1.8)
Reuters index *

(Period average)

 2004           2005                       2006

Annual   Annual     Dec     Apr     May     Jun     Jul     Aug

1,618    1 1,680   1,767   1,980   2,026   1,995   2,015   2,043

* A weighted average index of 17 major commodities


[11-4] International oil prices

[GRAPHIC OMITTED]

[11-5] International oil prices (Dubai crude) and import prices

[GRAPHIC OMITTED]

[11-6] International commodity prices

[GRAPHIC OMITTED]

12 Real estate market

12.1 Housing market

Apartment prices nationwide remained unchanged from the previous month in August.
Apartment sales prices

(Percentage change from previous period)

               2003     2004     2005

              Annual   Annual   Annual

Nationwide     9.6      -0.6     5.9
Seoul          10.2     -1.0     9.1
Gangnam (2)    14.3     -1.3     13.5
Gyeonggi        --      -3.7     7.6

                                      2006

              Jan   Feb   Mar   Apr   May   Jun    Jul   Aug    Aug
                                                               7 (1)

Nationwide    0.5   0.6   0.8   1.1   1.2   0.5    0.2   0.2    0.0
Seoul         0.9   1.1   1.8   2.3   2.0   0.6    0.3   0.3    0.0
Gangnam (2)   1.4   1.5   2.6   3.2   2.8   0.7    0.3   0.2    0.0
Gyeonggi      0.4   0.9   1.1   1.7   2.8   1.4    0.5   0.5    0.1

                        2006

               Aug      Aug      Aug
              14 (1)   21 (1)   31 (1)

Nationwide     0.0      0.1      0.0
Seoul          0.0      0.1      0.1
Gangnam (2)    0.0      0.1      0.1
Gyeonggi       0.2      0.3      0.2

(1) Weekly trends

(2) Upscale area of southern Seoul

Source: Kookmin Bank


Apartment rental prices in August slightly rebounded with higher demand for moving during the school vacation.
Nationwide apartment rental prices

(Percentage change from previous period)

               2003     2004     2005               2006

              Annual   Annual   Annual   Jan   Feb   Mar   Apr   May

Nationwide     -0.4     -2.7     5.7     0.5   0.6   0.9   0.7   0.5
Seoul          -3.2     -4.4     6.2     0.9   0.9   1.5   1.1   0.6
Gangnam (2)    -2.3     -5.2     8.6     1.0   1.0   1.6   1.2   0.6
Gyeonggi        --      -5.5     10.6    0.4   0.8   1.2   0.9   0.9

                                     2006

                Jun    Jul   Aug    Aug     Aug      Aug      Aug
                                   7 (1)   14 (1)   21 (1)   31 (1)

Nationwide      0.1    0.1   0.2    0.0     0.1      0.1      0.1
Seoul           0.2    0.2   0.4    0.0     0.1      0.1      0.1
Gangnam (2)     0.1    0.1   0.2    0.0     0.1      0.1      0.2
Gyeonggi        0.2    0.2   0.4    0.0     0.2      0.3      0.2

(1) Weekly trends

(2) Upscale area of southern Seoul

Source: Kookmin Bank


Apartment sales transactions in July decreased from the previous month.
Apartment sales transactions

(Monthly average, thousand)

 2004                               2005

Annual   Annual   May   Jun   Jul   Aug    Sep   Oct   Nov    Dec

  64       79     86    85    77     77    66    67    71     104

                  2006

Jan   Feb   Mar   Apr    May   Jun   Jul

66    86    107    89    89    81    68


[12-1] Real estate prices

[GRAPHIC OMITTED]

[12-2] Weekly apartment sales prices and monthly transaction volume

[GRAPHIC OMITTED]

[12-3] Apartment prices by region

[GRAPHIC OMITTED]

12.2 Land market

Nationwide land prices in July were up 0.39 percent from the previous month.

Only 53 areas out of 248 cities, counties and districts stayed above the nationwide average while the rest posted below the average.
Land prices by region

(Percentage change from previous period)

                 2003                     2004

                 Annual   Annual    Q1     Q2     Q3     Q4

Nationwide        3.43     3.86    1.36   1.09   0.77   0.58
Seoul             5.23     4.09    2.10   0.95   0.59   0.39
Gyeonggi          5.12     6.12    1.96   1.74   1.16   1.13
S. Chungcheong    4.81    11.65    2.40   4.65   3.93   0.25

                                2005

                 Annual    Q1     Q2     Q3     Q4

Nationwide        4.98    0.76   1.90   1.13   1.11
Seoul             6.56    0.74   2.65   1.44   1.59
Gyeonggi          5.69    0.96   2.40   1.41   0.81
S. Chungcheong    8.32    2.16   2.52   1.28   2.12

                            2006

                  Q1     Q2    Jun    Jul

Nationwide       1.31   1.43   0.43   0.39
Seoul            1.78   2.37   0.73   0.68
Gyeonggi         1.12   1.29   0.37   0.33
S. Chungcheong   2.77   1.31   0.31   0.24


Land transactions in July dropped month on month as transactions of farmland, forestland as well as residential building sites plummeted.
Land sales transactions

(Monthly average, thousand)

                  2004                       2005

                 Annual   Annual   Jun   Jul   Aug    Sep   Oct   Nov

Nationwide       218      248      287   253   246    210   206   213
Gyeonggi         52       56       63    60    55     50    46    48
N. Chungcheong   8        11       12    12    11     9     9     10
S. Chungcheong   20       17       31    17    15     11    11    12

                 2005                     2006

                 Dec    Jan   Feb   Mar   Apr    May   Jun   Jul

Nationwide       319    153   197   261   231    249   211   182
Gyeonggi          71    22    45    61     55    66    52    45
N. Chungcheong    13    11     8    11     8      9     9     8
S. Chungcheong    19    10    13    17     14    15    12     8


[12-4] Land and consumer prices since 1970s

[GRAPHIC OMITTED]

[12-5] Land prices by region

[GRAPHIC OMITTED]

[12-6] Land trade volume

[GRAPHIC OMITTED]

13 Composite indexes of business cycle indicators

The cyclical indicator of coincident composite index, a barometer of current economic conditions, fell 0.7 percentage points in July from a month earlier.

The decline was caused by a decrease in the value of construction completed and the index of domestic shipments despite an increase in the number of non-farm payroll employment.

The on-year leading composite index, which foresees the future economic conditions, dropped 0.5 percentage points in July from the previous month, a decline for the sixth consecutive month.

Of components of the index, the ratio of job opening to job seeking as well as inventory cycle index were down while the value of construction received increased by large margin.

A fall in the leading composite index may indicate a possible weakening of the economic recovery momentum in the coming months. However, further monitoring of the future developments in the index is required as a number of temporary factors affected the July figure.
                                            2006

                               Jan     Feb     Mar     Apr

Cyclical indicator of          100.8   100.5   100.5   100.0
  coincident composite index
(m-o-m, p)                     0.7     -0.3    0.0     -0.5
Leading composite index (2)    1 7.5   7.1     6.6     5.8
(m-o-m, %p)                    0.7     -0.4    -0.5    -0.8

                                           2006

                               May (1)   Jun (1)   Jul (1)

Cyclical indicator of          99.9      99.8      99.1
  coincident composite index
(m-o-m, p)                     -0.1      -0.1      -0.7
Leading composite index (2)    5.3       4.8       4.3
(m-o-m, %p)                    -0.5      -0.5      -0.5

(1) Preliminary

(2) y-o-y, %


[13-1] Cyclical indicator of coincident composite index

[GRAPHIC OMITTED]

[13-2] Leading composite index

[GRAPHIC OMITTED]

[13-3] Coincident and leading composite indexes

[GRAPHIC OMITTED]
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Publication:Economic Bulletin (Korea)
Geographic Code:9SOUT
Date:Sep 1, 2006
Words:9232
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