IMF Staff Concludes 2019 Article IV Mission to Korea
IMF News, March 12, 2019
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- Published: March 12, 2019
Mission timing and leadership
- An IMF team led by Tarhan Feyzioglu visited Seoul during February 27–March 12 to conduct discussions for the 2019 Article IV Consultation.
- Press Release No. 19/75
- March 12, 2019
Assessment of Korea’s economic fundamentals and challenges
- Strong fundamentals: skilled labor force, strong manufacturing base, stable financial system, low public debt, and ample foreign exchange reserves.
- Per-capita income recently exceeded thirty-thousand dollars.
- Short- and medium-term headwinds with risks tilted toward the downside:
- Growth is moderating on the back of sluggish investment and global trade.
- Inflation pressures are weak.
- Employment creation has been tepid.
- Household leverage is high and continues to increase.
- Potential growth has declined, hindered by unfavorable demographics and declining productivity growth.
- Polarization and inequality are concerns.
- Substantial productivity gap between the manufacturing and service sectors, and between small and large firms.
Policy evaluation and recent government actions
- Authorities have moved to a more expansionary fiscal stance.
- Government focus areas: supporting job creation, strengthening social safety nets, and increasing the minimum wage.
- Steps to promote growth through innovation by supporting small- and medium-sized enterprises.
- To contain financial risks the authorities have broadened and tightened macroprudential measures.
IMF staff recommendations — macroeconomic and financial policies
- Provide more fiscal stimulus through a substantial supplementary budget to support short-term growth and contain risks, with measures that promote potential output.
- The Bank of Korea should have a clearly accommodative monetary policy stance.
- Maintain appropriately tight macroprudential policies to preserve financial sector resilience.
- Staff recommend an integrated package of further macroeconomic, financial and structural policies to:
- support growth,
- raise potential output,
- reduce excess internal and external imbalances,
- preserve financial stability.
IMF staff recommendations — structural and labor market reforms
- Fiscal policy should remain expansionary in the medium-term to promote long-term, inclusive growth and job creation.
- Adopt flexicurity as a basis for labor market policies by:
- making employment protection legislation more flexible,
- further enhancing social safety nets and Active Labor Market Policies.
- Promote female labor market participation, including through improved childcare and child benefits.
- Address rigidities in product market regulations by further reducing barriers to entry and the protection of incumbents.
IMF Staff Concludes 2019 Article IV Mission to Korea — Press Release No. 19/75, March 12, 2019.