After a moderation in 2019, Korea’s economic growth is expected to pick up to 2.2* percent in 2020, supported by a rebound of demand for memory chips led by 5G installation in many countries. Headline inflation is expected to rise from 0.4 percent to 0.9 percent in 2020, remaining below the 2-percent inflation target set by the Bank of Korea.

In the near term, Korea’s highly open economy continues to be threatened by slower growth in China and advanced economies as well as an escalation of the U.S.-China trade tensions. Over the longer term, Korea continues to face challenges from an aging population and the wide disparity between large conglomerates and small-and-medium enterprises (SMEs). Heightened geopolitical risks and prolonged trade friction expose Korea’s financial markets to more volatility.

AMRO recommends policies to support the economy against a cyclical slowdown while maintaining financial stability. In dealing with structural challenges, AMRO welcomes the government’s efforts in achieving inclusive growth and promote innovation. AMRO notes that more support could be given to support the SMEs in encouraging technology adoption and innovation.

In addition to an assessment of recent economic developments, this report deep-dives into several thematic issues, which include (1) Korea’s development of portfolio investment and foreign exchange swap market, (2) how Korean firms adopt technology and its implications for SMEs, and (3) how the government uses fiscal policy as a counter-cyclical measure.

*AMRO’s projection of growth for 2020 was revised up to 2.4 percent in January 2020 from the previous 2.2 percent done during the 2019 Annual Consultation Visit to Korea. The projection does not include impacts of the novel-Coronavirus (COVID-19).