The near-term outlook for the Korean economy has improved, supported by the recovery of exports, and inflation is expected to decline further toward the target. As the economic outlook remains highly uncertain, the authorities are encouraged to stand ready to recalibrate monetary and fiscal policy stance to safeguard economic and financial stability, while continuing with efforts to boost growth.

Real GDP growth declined to 1.4 percent in 2023 from 2.6 percent in 2022, mainly due to the decline in net exports and subdued private consumption. The economy is forecast to rebound to an above-potential rate of 2.3 percent in 2024, supported by continued strengthening in goods exports, especially semiconductors.

Headline inflation declined to 3.6 percent in 2023 from 5.1 percent in 2022, driven by declines in energy prices, and is expected to continue its downward trend toward the target of 2 percent at the end of 2024. Core inflation has been trending down steadily but stickier than headline inflation. Moderate wage growth, despite the tight labor market, and gradual declines of short-term inflation expectations helped limit the second-round effects of inflation.