The International Monetary Fund has said South Korea’s fiscal policy should remain expansionary in the medium term to support growth, job creation and external rebalancing.
“Korea has ample fiscal space for additional stimulus, and in this context, (IMF directors) broadly welcomed the planned supplementary budget and the authorities’ readiness to take further action as necessary to achieve the growth target and strengthen social safety net,” the IMF said in a report posted on its website.
Korea has projected its economy to expand between 2.6 percent and 2.7 percent this year, but the Bank of Korea has trimmed its economic outlook for the year to 2.5 percent from 2.6 percent.
In the first quarter of the year, the economy unexpectedly contracted an estimated 0.3 percent from three months earlier, marking the worst performance in a decade.
The IMF expects the economy to expand at rate of 2.6 percent. It expanded 2.7 percent in 2018, down from a solid 3.1 percent the previous year.
It said export growth is projected to be weak, reflecting a deteriorating tech cycle and a slowdown in demand from China, Korea’s largest trading partner.
“Korea’s economy has strong fundamentals, supported by robust policy frameworks and a resilient financial system,” the IMF said.
“Nevertheless, cyclical and structural headwinds amid the challenging global environment have hampered growth prospects with risks to the downside.”
Executive directors of the IMF also agreed that Korea’s monetary policy should remain accommodative, and most directors saw room for further easing of monetary policy.
By Ram Garikipati and newswires (firstname.lastname@example.org)