|The economy experienced an investment-led upturn that is likely to continue thanks to stronger export growth in line with the recovery in world trade. Still, high household debt will continue to constrain private consumption. Output is projected to grow around 4% in 2014-15, helping to lift inflation into the target range of 2.5% to 3.5%.
As the recovery matures, monetary policy will need to tighten. If downside risks materialise, Korea has scope to use monetary and fiscal stimulus to support growth, given its sound fiscal position. The top priority is to avoid a low-growth trap by addressing challenges, such as rapid population ageing and a stagnant service sector, through wide-ranging reforms, including those in the government’s Three-year Plan for Economic Innovation.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.