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Future Prospects for the Korean Economy
Region: Asia
Location: Korea, South
Published March 4, 2016
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Korea has shaken off some of the impacts brought by the Sewol ferry disaster, but its overall pace of growth is still very weak. The Korean economy is forecast to grow by 3.5 percent in 2015, slightly higher than 3.4 percent in 2014. But there are growing downside risks in the global economy. Domestically speaking, mounting household debts and falling corporate profitability have weakened the fundamentals of the Korean economy, and structural factors, such as demographic changes, have also had negative impacts. Not only that, Korea’s inflation has been very low for quite a long time. Given weak domestic demand and low inflation in the midst of growing external uncertainties, expansionary macroeconomic policies are deemed necessary. Fiscal policy needs to remain expansionary and supportive of economic activity at a level that would not pose a threat to long-term fiscal prudence. Monetary policy should remain more alert and prepared for lower inflation. Since these short-term macroeconomic policies are not enough to sustain the dynamics of the Korean economy, aggressive and full-scale structural reform policies should be implemented in parallel so as to offset slow growth resulting from structural factors such as an aging population.

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