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GDP growth declined in the latter part of 2016 in the context of political uncertainty, corporate restructuring and a drop in exports. Assuming that domestic and international political uncertainty dissipates, growth is projected to edge up to 2.8% in 2018, supported by a pick-up in exports and rising business and consumer confidence. Inflation reached the 2% target in early 2017, while the current account surplus is expected to remain large at 6% of GDP.
A supplementary budget is needed to support growth in 2017. The measures to restrain mortgage lending will have to be carefully calibrated to achieve a soft landing in the housing market and stabilise household debt. Gradually reducing the degree of monetary accommodation by raising the policy rate from its all-time low of 1¼ per cent would help keep inflation in check and contain household debt.
Korea has joined 16 free trade agreements since 2003, promoting its integration in global value chains. However, excess world capacity in some capital-intensive industries, such as shipbuilding, is forcing restructuring and driving up unemployment in some areas in Korea. The government should ensure that unemployment benefits and active labour market policies are adequate to help affected workers move to new jobs.
Economic Survey of Korea (survey page)