IMF Raises South Korea 2017 Growth Outlook

The International Monetary Fund said on Tuesday it expects South Korea’s economy to expand by 3.2% this year, slightly faster than it had previously forecast, as a cyclical recovery led by exports will continue through the fourth quarter.

IMF’s mission team to South Korea said the outlook for Asia’s fourth-largest economy was improving despite elevated geopolitical tensions as global demand for its information technology products supported exports growth while private consumption was picking up, Yonhap reported.

The IMF raised its 2017 GDP estimate to 3.2% from 3% projected in September. The Bank of Korea’s growth outlook is at 3%. “The cyclical recovery is expected to continue,” the IMF said in a statement concluding its annual review of the South Korean economy.

IMF mission chief Tarhan Feyzioglu stressed that fiscal and monetary policies should remain accommodative to support growth as expenditure on social welfare and structural reforms remains important for overall growth.

Asked if interest rate hikes by the Bank of Korea would mean tightening, Feyzioglu said monetary policy would remain accommodative even after a couple of rate increases as the current policy rate is at a record-low of 1.25%.

The market consensus is that the Bank of Korea will raise interest rates for the first time in more than six years at its Nov. 30 meeting after the economy posted its fastest growth in seven years in the third quarter.

Meanwhile, more than half of South Korean people think the 1997 Asian financial crisis had an adverse impact on the economy, society and their daily lives, a survey showed Tuesday.

Twenty years ago, Asia’s fourth-largest economy experienced a slump in its currency and a sharp devaluation in its stock markets and asset prices along with other countries in the region. The country was forced to turn to a bailout package from the IMF, which demanded that the Seoul government tighten its belt and carry out tough structural reform, allowing insolvent banks and firms to collapse.

According to the survey conducted by the state-run Korea Development Institute, 57.4% of the 1,000 respondents said the financial crisis was the most difficult period for South Korea in its history, and 59.7% said it even altered their daily lives.

Nearly 90% said the most direct effect of the crisis was an increase in the numbers of temporary workers, while 86% answered that the crisis caused people to seek more stable jobs like being a government official or a teacher. The widening of the income gap between haves and have-nots was cited by 85.6% of those checked.

For the future, 41.1% of the respondents think job creation is the most important task for the South Korea economy, followed by seeking new growth engines and narrowing economic polarization.