Veni, Vidi, Gucci

Mee

t Choi Ju Hee, savior of the South Korean economy. Armed with two credit cards and an allowance from her parents, she spends at least $600 a month on clothes, drinking with friends and a serious cell-phone habit (her father once cut off her home phone for a month to teach her a lesson on the cost of things). Her most prized possession: a pair of Salvatore Ferragamo loafers. What she badly wants: a pair of Prada sneakers. On a recent shopping expedition, she eyes a white cotton DKNY skirt. Her mother steps in, telling her it is "too fancy." But by the end of the day, Choi has bagged two blue, $70 Ralph Lauren shirts. "They are fearless when it comes to spending money," says her mother. "These kids don't really think—they just want to buy everything."

Choi, 20, may be making life difficult for her parents, who remember a time when Korea was as poor as Bangladesh. But she is one reason why Korea's economy, amid global recession, is currently outperforming nearly every other country's in the world. Churning out everything from ships to semiconductors, Korea emerged as an export powerhouse during the last decade—it was international trade that allowed the country to bounce back from a brush with disaster during the Asia crisis four years ago. In the current downturn, things are different. With demand from the U.S. skidding, Korea has not only not tanked; it has, in fact, escaped recession altogether by tapping growth from an uncharacteristic conduit: domestic consumption.

Plenty of problems remain, including bust or near-bankrupt corporate giants such as Daewoo Motor and Hynix Semiconductor. But thanks to restructuring efforts forced by the crisis, the economy is proving to be surprisingly resilient, mature and self-assured—especially so considering that the international investment community classifies Korea as a developing country. Consumer confidence is booming, and a survey of 600 companies last week showed business confidence is at a record high. Stocks seem to be weightless—the benchmark Kospi stock index has soared 75% since Sept. 11.

So, while Europe is still groggy and the U.S. is just starting to show signs of a pulse (and Japan of course is still down for the count), little Korea will grow anywhere from 3.2% to 6% this year. That would make it the star performer in Asia after mighty China, expected to post growth of about 7%, according to official, and largely disbelieved, government estimates. Says Paul Presler, a market analyst and equity salesman at Nomura Securities in Seoul: "Korea has done a better job of restructuring and attracting foreign investment than anybody else in the region."

Unlike China, which continues to support economic expansion by building factories and grinding out exports, Korea's engine is increasingly turbocharged by Pocketbook Power. Manufacturing output as a percentage of GDP stood at 32% in Korea in 2000; the services sector was larger at 43%. Domestic spending by the country's 47 million consumers has grown from about 50% of GDP in 1987 to 58%. With more than 1 million service sector jobs added since 2000, it looks like Korea will be the first Asian economy to make the leap from an industrial-led to service-driven domestic economy.