IMF Executive Board Concludes 2016 Article IV Consultation with the Republic of Korea
On July 29, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Korea.
After decades of impressive economic progress, Korea’s growth has slowed, and the economy is facing a number of structural headwinds, including: unfavorable demographics; heavy export reliance; pockets of corporate vulnerabilities; labor-market distortions; lagging productivity; a limited social safety net; and high household debt. Inequality and poverty are also of concern. On the positive side, Korea has considerable fiscal space to manage these challenges.
Growth has been sluggish since 2012, reflecting not only a series of shocks but also a steady decline in the economy’s growth potential. The authorities have responded proactively with fiscal and monetary support, along with measures to contain the rapid increase in household debt. Activity started to pick up in the second half of last year but slowed again in the first quarter, reflecting the expiry of the consumption tax cut (which was later extended) and weaker fixed investment.
Growth is projected to tick up to 2.7 percent this year and 3.0 percent in 2017, with inflation remaining subdued. The anticipated pickup in activity is based on growing private consumption, a stronger housing market, and the impact of fiscal and monetary easing. On the other hand, export prospects will likely remain difficult, weighing on fixed investment. Credit is expected to continue to grow, partly reflecting the impact of interest rate cuts, but at a slower pace consistent with the tightening of prudential measures and the envisaged moderation in construction investment after 2017.
Press-release at the official IMF web-site