Output growth is projected to pick up to around 4% in 2014-15 despite headwinds from a high level of household debt and a weak property market. Stronger growth, led by a rebound in exports and business investment, is expected to boost inflation from around 1¼ per cent toward the midpoint of the central bank’s target range of 2.5% to 3.5%.
As the recovery gains pace, monetary policy will need to tighten to keep inflation in the target range. However, if downside risks materialise, Korea has scope to use both monetary and fiscal stimulus to support growth, given its budget surplus and low level of public debt. Sustaining growth over the medium term requires structural reforms to boost labour force participation, in line with the government's plan to raise the employment ratio to 70%, in the face of a declining working-age population from 2017 and to enhance productivity, particularly in services.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.