The economy of South Korea will grow by 2.7% in 2016 and 3.0% in 2017, according to forecasts of International Monetary Fund (IMF), which also welcomed the recent fiscal and monetary stimulus in the fourth largest Asian economy. The country has significant fiscal space to cope with the challenges to growth, including the aging population and high household indebtedness.
According to the International Monetary Fund, the social spending could reduce poverty and support consumption. The IMF believes that South Korea must reduce its interventions in the foreign exchange market.
In recent months, South Korean central bank and the government took measures to stimulate economic growth. Authorities in Seoul predicted additional costs to 11 trillion KRW (10 billion USD) and Bank of Korea surprised markets in June with a reduction in interest rates.
The IMF forecast for South Korean economy growth is similar to the one of the central bank last week, which kept its key interest rate at 1.25%.
“A careful and targeted increases in social spending in medium term can reduce the poverty and inequality and to support rebalancing by stimulating consumption and increasing productivity”, states the opinion of the IMF.
The fund also called for flexible movement of the exchange rate of the won and pointed out that South Korea should limit foreign exchange interventions and to declare such acts.
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