Korea’s economy is forecast to rebound strongly in 2021 led by a strong global recovery and robust demand for electronics, autos and other manufactured products. Consumer price inflation has picked up and is forecast to approach the Bank of Korea’s target of 2.0 percent in 2021 and 2022.
Risks stemming from COVID-19 pandemic containment, the US-China trade conflict, and household indebtedness could undermine Korea’s growth momentum. Financial imbalances have also manifested in the form of rising household debt and surging asset prices, while the financial positions of companies have weakened.
Expansionary fiscal policy and accommodative monetary policy should be maintained to ensure that the recovery remains on track. Stringent macro-prudential measures also remain necessary to contain a build-up of financial imbalances. The government’s continuing efforts to achieve more inclusive growth and strengthen growth potential are welcome.
The report also takes a deep dive into three pertinent issues relating to the Korean economy in recent years: (i) inflation dynamics after the Global Financial Crisis; (ii) development of Equity-linked Securities and the roll-out of new policy measures; and (iii) assessment of Korea’s medium-term fiscal policy direction.