{
  "title": "IMF Executive Board Concludes 2017 Article IV Consultation with the Republic of Korea",
  "publication": "IMF News, February 13, 2018",
  "sourceUrl": "https://www.imf.org/en/news/articles/2018/02/13/pr1848-korea-imf-executive-board-concludes-2017-article-iv-consultation",
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  "summary": "Growth picked up in 2017 after slowing in the second half of 2016, led by a strong expansion in investment, especially in the IT and construction sectors.",
  "publishDate": "2018-02-13",
  "sections": [
    {
      "heading": "Near-term outlook and recent developments",
      "content": "- Growth picked up in 2017 after slowing in the second half of 2016, led by a strong expansion in investment, especially in the IT and construction sectors.\n- Export growth strengthened due to improving external conditions and high global demand for semiconductors.\n- Private consumption growth picked up but remains below economic growth.\n- Monetary policy has been accommodative, with lending rates and long-term yields close to record lows.\n- Fiscal stance has been tight, with the structural budget surplus expected at 1.4 percent of GDP (consolidating central government and social security fund accounts).\n- Unemployment rate is hovering around 3.8 percent (seasonally adjusted) but remains significantly higher for youth.\n- Inflation has rebounded to around the Bank of Korea’s 2-percent target, although it displayed some volatility.\n- The current account surplus narrowed in 2017 but is expected to remain large above 5 percent in the medium term.\n- Household debt is identified as the main financial stability risk; macroprudential policies are effectively addressing challenges so far."
    },
    {
      "heading": "Growth projections and external balances",
      "content": "- GDP growth:\n  - Projected at 3.2 percent in 2017.\n  - Forecast at around 3.0 percent in 2018.\n- Drivers in 2018: private consumption growth supported by the large minimum wage increase and policies supporting employment and social spending; exports benefiting from strong global trade.\n- Current account surplus:\n  - Projected at 5.6 percent of GDP in 2017.\n  - Projected to edge lower to around 5.4 percent of GDP in 2018."
    },
    {
      "heading": "Executive Board assessment and macro policy guidance",
      "content": "- Directors welcomed the ongoing recovery and judged near-term risks to growth as balanced.\n- Long-term challenges cited: aging population, slowing productivity growth, and rising income inequality partly reflecting weak social protection, and labor and product market duality.\n- Fiscal policy:\n  - Commended for prudence and buffer-building.\n  - Directors agreed fiscal policy should be expansionary to enhance the social safety net, support short- and long-term growth, and reduce imbalances.\n  - Many Directors highlighted ample fiscal space to warrant a more expansionary stance; a number of Directors shared the authorities’ cautious approach to increasing public expenditures.\n  - For the longer term, fiscal challenges from the aging population will necessitate additional revenue mobilization.\n- Monetary policy:\n  - Should remain accommodative as inflationary pressures are likely to remain subdued.\n  - Directors recommended enhancing monetary policy credibility by strengthening communication of policy intentions and clarifying the BOK’s policy reaction function.\n  - Exchange rate should continue to move flexibly; intervention should be limited to addressing disorderly market conditions. A few Directors encouraged publication of intervention data.\n- Financial sector:\n  - Financial system is sound and macroprudential policies are effectively addressing high household debt risks.\n  - Authorities encouraged to remain vigilant to emerging risks, especially from non-bank financial institutions."
    },
    {
      "heading": "Structural reforms and labor market policy recommendations",
      "content": "- Priority reforms to mitigate duality in the labor market and support job creation to increase productivity and foster inclusive growth:\n  - Increase flexibility for regular workers.\n  - Establish a strong and inclusive safety net for the unemployed.\n  - Strengthen active labor market policies.\n- Public sector job expansion: scope exists but should be approached cautiously.\n- Minimum wage: should be increased with care going forward; any compensatory subsidy to small- and medium-size enterprises should be temporary.\n- Youth employment: strengthen existing measures such as vocational schools, the work-study dual system, and internships.\n- Female labor force participation and leadership: policies should focus on strengthening participation and leadership.\n- Business environment:\n  - Ease regulatory burden for firms, especially in the service sector.\n  - Government policy towards SMEs should prioritize fostering growth and innovation rather than shielding weaker firms.\n  - Scope to better design and coordinate R&D support."
    },
    {
      "heading": "Selected economic indicators, 2014–18 (highlights)",
      "content": "- Real GDP (percent change): 2014: 3.3; 2015: 2.8; 2016: 3.2; 2017: 3.0; 2018: (projection)\n- Total domestic demand: 2014: 3.1; 2015: 4.0; 2016: 3.7; 2017: 5.0\n- Final domestic demand: 2014: 2.5; 2015: 3.6; 2016: 4.8; 2017: 2.9\n- Gross fixed investment: 2014: 3.4; 2015: 5.1; 2016: 5.2; 2017: 9.0\n- Nominal GDP (in trillions of won): 2014: 1,486; 2015: 1,564; 2016: 1,637; 2017: 1,732; 2018: 1,805\n- Gross national saving (in percent of GDP): 2014: 34.5; 2015: 35.6; 2016: 35.7; 2017: 36.6; 2018: 36.0\n- Gross domestic investment (in percent of GDP): 2014: 29.3; 2015: 28.9; 2016: 29.2; 2017: 31.0; 2018: 30.7\n- Current account balance (in percent of GDP): 2014: 6.0; 2015: 7.7; 2016: 7.0; 2017: 5.6; 2018: 5.4\n- CPI inflation (end of period): 2014: 0.8; 2015: 1.1; 2016: 1.3; 2017: 2.1; 2018: 1.9\n- CPI inflation (average): 2014: 0.7; 2015: 1.0; 2016: (…)\n- Consolidated central government revenue (in percent of GDP): 2014: 21.2; 2015: 21.5; 2016: 22.5; 2017: 22.4; 2018: 22.7\n- Consolidated central government expenditure (in percent of GDP): 2014: 20.8; 2015: 20.9; 2016: 20.7\n- Structural balance (consolidating central government and social security funds): 1.5 (year not specified in table)\n- General government debt (in percent of GDP): 2014: 35.9; 2015: 37.8; 2016: 38.3; 2017: 37.6; 2018: 37.3\n- Credit growth (end of period): 2014: 7.4; 2015: 7.6; 2016: 7.3; 2017: 6.2; 2018: 6.1\n- Exports, f.o.b. (in billions of U.S. dollars): 2014: 613.0; 2015: 542.9; 2016: 511.9; 2017: 569.1; 2018: 603.3\n- Imports, f.o.b. (in billions of U.S. dollars): 2014: 524.1; 2015: 420.6; 2016: 393.1; 2017: 446.6; 2018: 476.9\n- Gross international reserves (end of period, in billions of U.S. dollars): 2014: 358.8; 2015: 363.2; 2016: 366.3; 2017: 366.9; 2018: 368.5\n- Total external debt (end of period, in billions of U.S. dollars): 2014: 424.3; 2015: 396.1; 2016: 380.9; 2017: 364.9; 2018: 354.0\n- Total external debt (in percent of GDP): 2014: 30.1; 2015: 28.6; 2016: 27.0; 2017: 23.8; 2018: 21.4\n- Debt service ratio: 2014: 9.3; 2015: 8.4; 2016: 7.8\n\nSource: IMF Communications Department, February 13, 2018.\n\n---\n\n\n References\n\n- The Executive Board\n- Republic of Korea and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2018/02/13/pr1848-korea-imf-executive-board-concludes-2017-article-iv-consultation"
    }
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    "[Bundle manifest](/en/news/articles/2018/02/13/pr1848-korea-imf-executive-board-concludes-2017-article-iv-consultation/bundle-manifest.json)",
    "Published: February 13, 2018",
    "Growth picked up in 2017 after slowing in the second half of 2016, led by a strong expansion in investment, especially in the IT and construction sectors.",
    "Export growth strengthened due to improving external conditions and high global demand for semiconductors.",
    "Private consumption growth picked up but remains below economic growth.",
    "Monetary policy has been accommodative, with lending rates and long-term yields close to record lows.",
    "Fiscal stance has been tight, with the structural budget surplus expected at 1.4 percent of GDP (consolidating central government and social security fund accounts).",
    "Unemployment rate is hovering around 3.8 percent (seasonally adjusted) but remains significantly higher for youth.",
    "Inflation has rebounded to around the Bank of Korea’s 2-percent target, although it displayed some volatility.",
    "The current account surplus narrowed in 2017 but is expected to remain large above 5 percent in the medium term.",
    "Household debt is identified as the main financial stability risk; macroprudential policies are effectively addressing challenges so far.",
    "GDP growth:",
    "Drivers in 2018: private consumption growth supported by the large minimum wage increase and policies supporting employment and social spending; exports benefiting from strong global trade.",
    "Current account surplus:",
    "Directors welcomed the ongoing recovery and judged near-term risks to growth as balanced.",
    "Long-term challenges cited: aging population, slowing productivity growth, and rising income inequality partly reflecting weak social protection, and labor and product market duality.",
    "Fiscal policy:",
    "Monetary policy:",
    "Financial sector:",
    "Priority reforms to mitigate duality in the labor market and support job creation to increase productivity and foster inclusive growth:",
    "Public sector job expansion: scope exists but should be approached cautiously.",
    "Minimum wage: should be increased with care going forward; any compensatory subsidy to small- and medium-size enterprises should be temporary.",
    "Youth employment: strengthen existing measures such as vocational schools, the work-study dual system, and internships.",
    "Female labor force participation and leadership: policies should focus on strengthening participation and leadership.",
    "Business environment:",
    "Real GDP (percent change): 2014: 3.3; 2015: 2.8; 2016: 3.2; 2017: 3.0; 2018: (projection)",
    "Total domestic demand: 2014: 3.1; 2015: 4.0; 2016: 3.7; 2017: 5.0",
    "Final domestic demand: 2014: 2.5; 2015: 3.6; 2016: 4.8; 2017: 2.9",
    "Gross fixed investment: 2014: 3.4; 2015: 5.1; 2016: 5.2; 2017: 9.0",
    "Nominal GDP (in trillions of won): 2014: 1,486; 2015: 1,564; 2016: 1,637; 2017: 1,732; 2018: 1,805",
    "Gross national saving (in percent of GDP): 2014: 34.5; 2015: 35.6; 2016: 35.7; 2017: 36.6; 2018: 36.0",
    "Gross domestic investment (in percent of GDP): 2014: 29.3; 2015: 28.9; 2016: 29.2; 2017: 31.0; 2018: 30.7",
    "Current account balance (in percent of GDP): 2014: 6.0; 2015: 7.7; 2016: 7.0; 2017: 5.6; 2018: 5.4",
    "CPI inflation (end of period): 2014: 0.8; 2015: 1.1; 2016: 1.3; 2017: 2.1; 2018: 1.9",
    "CPI inflation (average): 2014: 0.7; 2015: 1.0; 2016: (…)",
    "Consolidated central government revenue (in percent of GDP): 2014: 21.2; 2015: 21.5; 2016: 22.5; 2017: 22.4; 2018: 22.7",
    "Consolidated central government expenditure (in percent of GDP): 2014: 20.8; 2015: 20.9; 2016: 20.7",
    "Structural balance (consolidating central government and social security funds): 1.5 (year not specified in table)",
    "General government debt (in percent of GDP): 2014: 35.9; 2015: 37.8; 2016: 38.3; 2017: 37.6; 2018: 37.3",
    "Credit growth (end of period): 2014: 7.4; 2015: 7.6; 2016: 7.3; 2017: 6.2; 2018: 6.1",
    "Exports, f.o.b. (in billions of U.S. dollars): 2014: 613.0; 2015: 542.9; 2016: 511.9; 2017: 569.1; 2018: 603.3",
    "Imports, f.o.b. (in billions of U.S. dollars): 2014: 524.1; 2015: 420.6; 2016: 393.1; 2017: 446.6; 2018: 476.9",
    "Gross international reserves (end of period, in billions of U.S. dollars): 2014: 358.8; 2015: 363.2; 2016: 366.3; 2017: 366.9; 2018: 368.5",
    "Total external debt (end of period, in billions of U.S. dollars): 2014: 424.3; 2015: 396.1; 2016: 380.9; 2017: 364.9; 2018: 354.0",
    "Total external debt (in percent of GDP): 2014: 30.1; 2015: 28.6; 2016: 27.0; 2017: 23.8; 2018: 21.4",
    "Debt service ratio: 2014: 9.3; 2015: 8.4; 2016: 7.8",
    "[The Executive Board](http://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[Republic of Korea and the IMF](http://www.imf.org/external/country/KOR/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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