Namdaemun Market in Seoul. Growth is expected to decline to around 2.6 percent in 2019, but pick up in the medium term, led by recovering investment and stronger domestic consumption (photo: istock/mariusz_prusaczyk)

May 21, 2019

With strong fundamentals, Korea’s economy has performed well in recent years, but short-term growth is now moderating, and long-term growth is facing headwinds. Fiscal and monetary policies should boost growth, and structural policies should foster inclusion and enhance productivity, according to the IMF’s latest assessment of the Korean economy.

Korea is the 11^th largest economy in the world and its per capita income has recently passed the $30,000 mark. It has a very strong export base and a skilled labor force. Importantly, to guard the economy against significant adverse developments, Korea has built large buffers in the financial and public sectors.

Despite these strong fundamentals, GDP growth dropped to 2.7 percent in 2018 from 3.1 percent in 2017. The global trade slowdown, particularly for semi-conductors, is taking a toll on equipment investment. Export growth is deteriorating on the back of trade tensions and China’s slowdown. Inflation pressures are weak and job creation tepid. Household leverage keeps increasing, albeit at a slower pace, raising concerns about financial risk.

In the short term, an easing of fiscal and monetary policy would help support economic growth and contain risks. To promote long-term, inclusive growth and job creation, fiscal policy should remain expansionary in the medium term, focusing on increasing social protection, boosting female labor force participation, and supporting growth-enhancing reforms in product and labor markets. In addition, public sector job creation should be linked to developing services that cannot be provided by the private sector.

Here are six charts that tell the story.