{
  "title": "IMF Executive Board Concludes 2019 Article IV Consultation with the Republic of Korea",
  "publication": "IMF News, May 13, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/05/13/pr19161-republic-of-korea-imf-executive-board-concludes-2019-article-iv-consultation",
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  "summary": "On May 8, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Korea.",
  "publishDate": "2019-05-13",
  "sections": [
    {
      "heading": "Overview and Context",
      "content": "- On May 8, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Korea.\n- Korea’s economy has strong fundamentals and a resilient financial system, but short-term growth is moderating amid cyclical and structural headwinds, with risks to the downside.\n- Key structural concerns include unfavorable demographics, slowing productivity growth, rising household leverage, weak domestic demand, income inequality and polarization, and labor and product market duality."
    },
    {
      "heading": "Growth Performance and Projections",
      "content": "- Real GDP (percent change)\n  - 2017: 3.1\n  - 2018: 2.7\n  - 2019 (projection): 2.6\n  - 2020 (projection): 2.8\n- Drivers of the 2018 slowdown:\n  - Global slowdown in trade and in demand and prices for semi-conductors.\n  - Weakened export growth due to trade tensions and China’s growth slowdown.\n  - Equipment investment affected; employment growth fell to 0.4 in 2018 from 1.2 percent in 2017.\n- Outlook for 2019:\n  - Growth projected to slide to around 2.6 percent in 2019.\n  - Deterioration in external demand expected to drive the slowdown.\n  - Domestic consumption expected to accelerate, supported by fiscal stimulus embedded in the 2019 budget and a supplementary budget.\n  - Facility investment expected to face continued headwinds; construction investment expected to stabilize closer to long-term trends.\n  - Economic slack will dissipate only gradually."
    },
    {
      "heading": "Inflation, Labor Market, and Social Policies",
      "content": "- Inflation\n  - Year-on-year headline inflation declined to 0.5 percent in February 2019.\n  - Core inflation excluding food and energy recorded 1.1 percent year-on-year in February 2019.\n- Labor market\n  - Employment growth: 1.2 percent in 2017; 0.4 in 2018.\n  - Weak job creation by the private sector noted.\n- Social and labor measures taken by authorities\n  - Strengthened social safety nets.\n  - Substantially raised the minimum wage.\n  - Supported SMEs to boost employment.\n  - Expanded public sector jobs.\n- Structural issues emphasized: income equality and polarization worsening; need to address labor market duality."
    },
    {
      "heading": "External Sector, Savings, and Investment",
      "content": "- Current account and saving\n  - Current account balance (percent of GDP): 4.9 in 2017; 4.6 in 2018.\n  - Gross national saving (percent of GDP): 36.0 in 2017; 34.9 in 2018; 34.2 (2019 proj.); 33.7 (2020 proj.).\n  - Gross domestic investment (percent of GDP): 31.1 in 2017; 30.2 in 2018; 29.6 (2019 proj.); 29.3 (2020 proj.).\n- Trade volumes (percent change)\n  - Export volume: 5.3 in 2017; 7.2 in 2018.\n  - Import volume: 8.5 in 2017; 3.0 in 2018; 2.9 (2019 proj.).\n  - Terms of trade: -0.8 in 2017; -6.5 in 2018.\n- Nominal GDP (in trillions of won)\n  - 2017: 1,730.4\n  - 2018: 1,782.3\n  - 2019 (proj.): 1,852.8\n  - 2020 (proj.): 1,937.0"
    },
    {
      "heading": "Fiscal and Monetary Policy Stance",
      "content": "- Fiscal policy\n  - Fiscal stance was tight in 2018.\n  - Structural budget surplus estimated to have increased by 0.4 percentage point compared to 2017, to 2.9 percent of GDP.\n  - Consolidated central government (in percent of GDP) — Revenue: 23.2 (2017); 24.2 (2018); 24.7 (2019 proj.); Expenditure: 20.8 (2017); 21.5 (2018); 22.7 (2019 proj.); 23.1 (2020 proj.).\n  - Net lending/borrowing and balances: Overall balance 0.6 (2017). Excluding Social Security Funds: -1.1 (2017); -0.6 (2018); -1.4 (2019 proj.).\n  - Directors noted Korea has ample fiscal space and generally concurred that fiscal policy should remain expansionary into the medium term to support growth, job creation, and external rebalancing.\n  - Directors welcomed the planned supplementary budget and the authorities’ readiness to take further action as necessary.\n  - Longer-term recommendation: tax reforms to promote innovation and efficiency and greater revenue mobilization to prepare for the aging population.\n- Monetary policy\n  - Bank of Korea increased its main policy rate by 25 basis points to 1.75 percent in November 2018 and has been on hold since.\n  - Directors agreed that monetary policy should remain accommodative.\n  - With inflation projected to remain below target and the output gap negative, most Directors saw room for further easing of monetary policy; a few Directors emphasized preserving policy space and financial stability.\n  - Encouraged reliance on targeted macroprudential policies to manage financial stability risks, including from high household indebtedness and possible house price corrections.\n  - Ongoing efforts to strengthen regulatory and oversight frameworks welcomed."
    },
    {
      "heading": "Financial Sector and Risks",
      "content": "- Household and financial risks\n  - Household leverage keeps increasing, albeit at a slower pace, creating concerns about financial risk.\n  - Directors encouraged macroprudential measures and welcomed strengthening of regulatory and oversight frameworks.\n- External debt and reserves\n  - Gross international reserves (end of period, in billions of U.S. dollars): 384.5 (2017); 398.9 (2018); 422.2 (2019 proj.); 444.5 (2020 proj.).\n  - In percent of short-term debt (residual maturity): 227.2 (2017); 226.8 (2018); 232.8 (2019 proj.); 237.9 (2020 proj.).\n  - Total external debt (end of period, in billions of U.S. dollars): 412.0 (2017); 440.6 (2018); 489.0 (2019 proj.); 531.2 (2020 proj.).\n  - Short-term external debt (end of period, in billions of U.S. dollars): 116.0 (2017); 126.6 (2018); 128.1 (2019 proj.); 133.5 (2020 proj.).\n  - Total external debt (in percent of GDP): 26.9 (2017); 27.2 (2018); 29.5 (2019 proj.); 30.5 (2020 proj.).\n  - Debt service ratio: 8.2 (2017); 8.8 (2018); 9.8 (2019 proj.); 10.9 (2020 proj.)."
    },
    {
      "heading": "Structural Reforms and Policy Recommendations",
      "content": "- Promote balanced, private sector-led growth, foster inclusion, and enhance productivity.\n- Fiscal policy\n  - Remain expansionary into the medium term.\n  - Use fiscal policy to promote women and youth employment, enhance active labor market policies, and support growth-enhancing structural reforms.\n  - Undertake tax reforms to promote innovation and efficiency in resource allocation.\n  - Mobilize greater revenue to prepare for an aging population.\n- Monetary and macroprudential policy\n  - Keep monetary policy accommodative given below-target inflation and a negative output gap; most Directors saw room for further easing.\n  - Rely more on targeted macroprudential policies to manage financial stability risks from high household indebtedness and house price corrections.\n- Labor and product market reforms\n  - Enhance flexibility and security (flexicurity) in the labor market to mitigate duality and create private-sector jobs.\n  - Link minimum wage increases to labor productivity growth and phase out compensatory subsidies to small- and medium-sized enterprises.\n  - Diversify the manufacturing sector and liberalize the services sector by easing regulatory burdens, lowering barriers to entry, and reducing protection of existing firms.\n- Exchange rate and external rebalancing\n  - Continue commitment to a flexible exchange rate.\n  - Policies and structural reforms that promote domestic demand and private investment would help reduce the current account surplus."
    },
    {
      "heading": "Key Selected Economic Indicators (2017–20, projections where indicated)",
      "content": "- Real GDP (percent change): 3.1 (2017); 2.7 (2018); 2.6 (2019); 2.8 (2020).\n- Total domestic demand: 5.1 (2017); 1.7 (2018); 3.3 (2019).\n- Final domestic demand: 4.7 (2017); 1.6 (2018); 3.9 (2019).\n- Consumption (percent change): 3.5 (2017); 3.6 (2018).\n- Gross fixed investment: 8.6 (2017); -2.2 (2018); 0.7 (2019); 4.5 (2020).\n- Stock building (contribution to GDP growth): 0.4 (2017); 0.1 (2018); 0.2 (2019); -0.5 (2020).\n- Net foreign balance (contribution to GDP growth): -1.7 (2017); 1.2 (2018); -0.4 (2019); -0.3 (2020).\n- CPI inflation (end of period): 1.4 (2017); 1.3 (2018).\n- CPI inflation (average): 1.9 (2017); 1.5 (2018).\n- GDP deflator: 2.3 (2017); 0.3 (2018).\n- Real effective exchange rate: 0.9 (2018).\n- Exports, f.o.b. (billions of U.S. dollars): 580.3 (2017); 625.4 (2018); 638.5 (2019 proj.); 660.3 (2020 proj.).\n- Imports, f.o.b. (billions of U.S. dollars): 466.7 (2017); 513.6 (2018); 523.4 (2019 proj.); 538.9 (2020 proj.).\n- Oil imports (billions of U.S. dollars): 59.6 (2017); 80.4 (2018); 69.8 (2019 proj.); 71.9 (2020 proj.).\n- M3 growth (end of period): 6.6 (2018).\n- Overnight call rate, Three-year AA- corporate bond yield: (listed in indicators without numeric values in the source).\n\nIMF Communications Department — Press Release No. 19/161, May 13, 2019.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- People's Republic of China and the IMF\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/2019/05/13/pr19161-republic-of-korea-imf-executive-board-concludes-2019-article-iv-consultation"
    }
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    "Published: May 13, 2019",
    "On May 8, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Korea.",
    "Korea’s economy has strong fundamentals and a resilient financial system, but short-term growth is moderating amid cyclical and structural headwinds, with risks to the downside.",
    "Key structural concerns include unfavorable demographics, slowing productivity growth, rising household leverage, weak domestic demand, income inequality and polarization, and labor and product market duality.",
    "Real GDP (percent change)",
    "Drivers of the 2018 slowdown:",
    "Outlook for 2019:",
    "Inflation",
    "Labor market",
    "Social and labor measures taken by authorities",
    "Structural issues emphasized: income equality and polarization worsening; need to address labor market duality.",
    "Current account and saving",
    "Trade volumes (percent change)",
    "Nominal GDP (in trillions of won)",
    "Fiscal policy",
    "Monetary policy",
    "Household and financial risks",
    "External debt and reserves",
    "Promote balanced, private sector-led growth, foster inclusion, and enhance productivity.",
    "Fiscal policy",
    "Monetary and macroprudential policy",
    "Labor and product market reforms",
    "Exchange rate and external rebalancing",
    "Real GDP (percent change): 3.1 (2017); 2.7 (2018); 2.6 (2019); 2.8 (2020).",
    "Total domestic demand: 5.1 (2017); 1.7 (2018); 3.3 (2019).",
    "Final domestic demand: 4.7 (2017); 1.6 (2018); 3.9 (2019).",
    "Consumption (percent change): 3.5 (2017); 3.6 (2018).",
    "Gross fixed investment: 8.6 (2017); -2.2 (2018); 0.7 (2019); 4.5 (2020).",
    "Stock building (contribution to GDP growth): 0.4 (2017); 0.1 (2018); 0.2 (2019); -0.5 (2020).",
    "Net foreign balance (contribution to GDP growth): -1.7 (2017); 1.2 (2018); -0.4 (2019); -0.3 (2020).",
    "CPI inflation (end of period): 1.4 (2017); 1.3 (2018).",
    "CPI inflation (average): 1.9 (2017); 1.5 (2018).",
    "GDP deflator: 2.3 (2017); 0.3 (2018).",
    "Real effective exchange rate: 0.9 (2018).",
    "Exports, f.o.b. (billions of U.S. dollars): 580.3 (2017); 625.4 (2018); 638.5 (2019 proj.); 660.3 (2020 proj.).",
    "Imports, f.o.b. (billions of U.S. dollars): 466.7 (2017); 513.6 (2018); 523.4 (2019 proj.); 538.9 (2020 proj.).",
    "Oil imports (billions of U.S. dollars): 59.6 (2017); 80.4 (2018); 69.8 (2019 proj.); 71.9 (2020 proj.).",
    "M3 growth (end of period): 6.6 (2018).",
    "Overnight call rate, Three-year AA- corporate bond yield: (listed in indicators without numeric values in the source).",
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    "[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)",
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