Outlook for 2011-15

• The president, Lee Myung-bak, will remain in office until the next presidential election, due in late 2012. His Grand National Party (GNP) will retain its majority in parliament until the next legislative election, due in April 2012.
• The People's Participation Party (PPP), a grouping that recently broke away from the opposition Democratic Party (DP), could split the parties' vote base to the benefit of the GNP, but the PPP is too small to have a tangible impact.
• The low-level military talks that took place between South and North Korea in February ended early after the Northern representatives stormed out. Further talks are likely but inter-Korean relations will remain tense.
• On March 10th the Bank of Korea (South Korea's central bank) raised its main policy interest rate, the official cash rate, by 25 basis points, to 3%, owing to rising inflationary pressures. Policy rates will be gradually raised in 2011-15.
• The Economist Intelligence Unit expects real GDP growth to average 4.1% in 2011-15. The relatively subdued rate of growth will largely reflect the after-effects of the 2008-09 global financial crisis.
• Year-on-year consumer price inflation averaged 4.3% during January and February, compared with 3.5% in December. As a result of rising price pressures, we have raised our 2011 inflation forecast to 4.2% (previously 3.6%).

Monthly review

• On February 18th the GNP and DP finally agreed to open an extraordinary session of the National Assembly (parliament), after a two-month impasse. Several bills were passed and five special committees were established.
• In February Lee Myung-bak lost one of his closest political allies, when Chang Soo-man resigned as head of a government weapons-purchasing body, the Defence Acquisition Program Administration.
• Hopes of a thaw in inter-Korean relations have proved short-lived. On the second day of talks, in early February, the two sides met for only one hour before lunch and just 12 minutes after, before the North ceased negotiations.
• Policymakers are taking on an interventionist approach to price stabilisation, with pressures being applied on purveyors of food, oil and telecommunications services against price increases.
• South Korea's free-trade agreement with the EU, which was finalised in October 2010, was cleared by the EU Parliament in February. It will go into force in July 2011.
• Manufacturing output increased by 4.6% month on month in January, the biggest month-on-month gain since March 2009.