The Korean economy has faced a number of shocks in 2008, including higher commodity prices, slowing world trade and the global financial crisis. The terms-of-trade shock – Korea is the world’s fifth-largest oil importer – weakened the won and heightened inflationary pressures, which have squeezed household income and corporate profits, damping private consumption and investment. In addition, housing market policies contributed to a 5% decline in residential investment over the past year, while the deceleration in world trade took a toll on Korean export growth. With weaker domestic demand and exports, output growth fell from 5% in 2006-07 to 3% in the first three quarters of 2008, at a seasonallyadjusted annual rate. Intensified financial turbulence in September 2008 has further dimmed the economic outlook by accelerating the depreciation of the won and tightening credit conditions. The timing of the rebound depends on an improvement in the world economy, which may not occur until well into 2009. In that event, economic growth is projected at around 3% on a year-average basis in 2009 before rising back to around 4% in 2010.