South Korea’s economy will expand 2.7 percent this year and 3 percent next year, the International Monetary Fund said in a statement, which also welcomed recent fiscal and monetary stimulus in Asia’s fourth-largest economy.
The nation has "considerable fiscal space" to manage challenges to growth such as an aging society and high household debt, the fund’s directors said in a statement after talks. The fund said that social spending could reduce poverty and help consumption, and said that Korea should limit intervention in currency markets.
Both the government and central bank took action in recent months to shore up growth, with 11 trillion won ($10 billion) in extra spending and the Bank of Korea surprising markets with a June rate cut. The IMF’s forecast for growth is similar to that of the central bank, which this week kept its key interest rate at a record low of 1.25 percent.
"A carefully targeted expansion of social expenditure over the medium term could help reduce poverty and inequality and aid rebalancing by bolstering consumption and raising productivity," the statement said.
The fund also called for the won exchange rate to be allowed to move flexibly and said that Korea should limit currency intervention to "addressing disorderly market conditions" and disclose any such actions. Government and central bank officials have said any intervention in the currency market is always limited to “smoothing operations,” and they never reveal the size or timing of any action.