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South Korea Infrastructure Report Q3 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: June 2009 Product Code: R302-6558 Description South Korea’s construction industry has been hit by the global economic downturn, with the impactalready highly visible on the sector. In BMI’s Q209 South Korea Infrastructure report we are forecastinga contraction of 16.53% year-on-year (y-o-y) in 2009, reaching a value of KRW62.40trn (US$48.71bn).BMI has revised up its forecast for South Korea’s construction industry real growth from the 24%contraction forecast for 2009 last quarter. This is because we believe that although the contraction will benot as deep as we previously predicted it will be more protracted, continuing into 2010, when we believeit will contract by 4.83%. South Korea has released Q408 data for the construction industry including sub-sector breakdowns. Thisdata illustrates that the residential and non-residential construction industries have both been hit hard witha nominal contraction of 24% and 7.5%, respectively, compared with Q407. However, civil construction,i.e. infrastructure, has actually grown compared with the same period in 2007, by 11.14% in nominalterms. This can in part be explained by the government’s investments into infrastructure. This will continue into2009, presenting upside risks to our forecasts, with the government’s stimulus package and more recentlyan announcement in February 2009 that stated it would allocate KRW1trn (US$661mn) in special loansfor private infrastructure construction companies. According to AFP, the government is prepared to takeon up to 80% of loan repayments in the event of an abrupt rise in rates. In addition, it will provideKRW2trn (US$1.32bn) in debt guarantees for private sector companies involved in the construction ofinfrastructure. There are currently large-scale ongoing projects in the transport sector that run into the billions of dollars.The country is continuing to expand its rail links, with the multi-billion dollar Great Train Express projectunder way and plans announced for the construction of a new high-speed rail link between Seoul andChuncheon, costing US$1.87bn. The power sector has also seen activity, with the country working to expand generating capacity, mainlythrough nuclear power, and develop its renewable power sector. Both are targeted at meeting growingdemand and reaching the government’s target of 11% of energy generated to come from 'clean' sources by2030. In addition, plans are in place to start construction on the largest desalination facility of its type inthe world in Busan. Evidence of private sector interest in the power sector, and the infrastructure sector ingeneral, can be seen through the joint establishment of a US$1bn fund for investing in South Koreaninfrastructure, including alternative energy, by Australia's Macquarie Group, together with SouthKorea's Woori Bank. This activity is offset by the faltering non-infrastructure construction sector. In addition, the decliningmacroeconomic environment (-3.3% real GDP growth forecast for 2009) in the export-dependent countryis also impacting investor attraction and may affect the government’s ability to invest, both of which willcontribute to overall reduced activity in the construction industry in South Korea in 2009. Table of Contents
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