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OECD urges stronger fiscal discipline amid aging population pressures
Finance Minister Koo Yun-cheol, left, holds a copy of the OECD Economic Surveys: Korea 2026 report with Douglas Sutherland, head of the country studies division at the OECD and leader of the delegation from the Paris-based organization, ahead of their meeting at Government Complex Seoul, Wednesday. Courtesy of Ministry of Finance and Economy
By Jun Ji-hye
Paris-based organization maintains 2.6% growth outlook for Seoul
Korea’s economy is maintaining its growth momentum despite conflict in the Middle East, supported by a recovery in consumption and strong semiconductor exports, the OECD said Thursday.
But it also warned that the country’s medium- to long-term growth trajectory is likely to weaken due to persistently low fertility rates and a rapidly aging population.
In its latest OECD Economic Surveys: Korea 2026 report, the Paris-based organization said fiscal policy should continue to support recovery in domestic demand in the short term, while stressing the need for stronger medium-term fiscal consolidation to address risks.
The organization projected Korea’s economy to grow 2.6 percent this year, while consumer inflation is also expected to average 2.6 percent. For 2027, the OECD forecast economic growth to slow to 1.9 percent, with inflation easing to 2.2 percent.
In its March report, the OECD cut its growth outlook for Korea this year to 1.7 percent from 2.1 percent, citing concerns over the conflict in the Middle East and rising energy costs. It then sharply revised its assessment in June, raising the projection to 2.6 percent on expectations that robust semiconductor exports would offset geopolitical risks.
In its latest report, it kept that June forecast unchanged.
"Semiconductor exports have been an important growth driver, with the growth contribution of exports and investments accelerating in early 2026," the report said.
OECD Economic Surveys are country reports published every two years to assess economic conditions in member countries and provide policy analysis and recommendations.
The organization said Korea has seen substantial gains in income and living standards since joining in 1996, noting that the economy has continued to show signs of recovery despite uncertainty linked to former President Yoon Suk Yeol’s declaration of martial law on Dec. 3, 2024, and the Middle East conflict.
The OECD delegation, including Douglas Sutherland, third from left, head of the country studies division, attends a briefing on the OECD Economic Surveys: Korea 2026 report at the Ministry of Finance and Economy at Government Complex Sejong, Thursday. Yonhap
At the same time, the OECD urged Korea to prepare for medium-term fiscal tightening and pursue structural reforms to address spending pressures from an aging society and other chronic challenges, including a very low birth rate and widening regional disparities.
"Due to extremely low birth rates and increasing life expectancy, the age structure of the population has inverted, and the labor force is set to contract in a few years after decades of expansion," the report said.
It called for a stronger political consensus to establish an enhanced fiscal framework geared toward long-term sustainability, and urged progress on pension reform and improvements in public spending efficiency to safeguard fiscal health.
Tax system overhauls were also highlighted as a key priority to support growth. The OECD said Korea should place greater emphasis on consumption taxes, such as value added tax and tobacco levies, while streamlining its corporate tax system.
On real estate taxation, the OECD noted that Korea’s total property tax revenue stands at 3 percent of GDP, well above the OECD average of 1.6 percent, but that property holding taxes account for just 29.4 percent of the total, far below the OECD average of 56 percent.
To address this imbalance, it recommended shifting away from transaction-based taxes toward holding taxes, while gradually aligning property valuations with market prices.
“The government will carefully review the OECD’s policy recommendations and use them as a reference for future policy initiatives,” an official at the Ministry of Finance and Economy said.