By Kim Tae-jong
The slower growth of Korea's main trading partners has emerged as a main near-term risk to the country's economy rather than domestic factors, the International Monetary Fund (IMF) said Friday.
The IMF said in a report based on its late 2013 annual policy review that Korea's economy is recovering gradually, helped by supportive monetary and fiscal policies and strong exports, adding that growth should strengthen further in 2014.
But it noted that external factors, such as severe market stress, will weigh on the country's economy, while key domestic risks are weak, although the nation may suffer lower growth if structural reforms fail to offset the drag from rapid aging.
To tackle potential problems, the organization suggested policies should aim to tackle the weakness of domestic demand and counter forthcoming headwinds to potential growth.
It also said the country should increase counter cyclicality through higher automatic stabilizers and a structural balance fiscal rule, and continue to focus on labor market reforms to enhance participation and reduce duality. In addition, as the social safety net expands, the country should accelerate services sector deregulation and small- and medium-sized enterprise consolidation.
In terms of monetary policy, it concluded the current accommodative stance is appropriate given the lack of inflation or financial stability concerns, and suggested normalization should not start until there is confidence that the output gap will close.
It also took a very careful approach to the government's intervention in the exchange market, stressing the importance of market-determined policies. It also said foreign exchange reserves are ample and there is no need for further accumulation.
The slower growth of Korea's main trading partners has emerged as a main near-term risk to the country's economy rather than domestic factors, the International Monetary Fund (IMF) said Friday.
The IMF said in a report based on its late 2013 annual policy review that Korea's economy is recovering gradually, helped by supportive monetary and fiscal policies and strong exports, adding that growth should strengthen further in 2014.
But it noted that external factors, such as severe market stress, will weigh on the country's economy, while key domestic risks are weak, although the nation may suffer lower growth if structural reforms fail to offset the drag from rapid aging.
To tackle potential problems, the organization suggested policies should aim to tackle the weakness of domestic demand and counter forthcoming headwinds to potential growth.
It also said the country should increase counter cyclicality through higher automatic stabilizers and a structural balance fiscal rule, and continue to focus on labor market reforms to enhance participation and reduce duality. In addition, as the social safety net expands, the country should accelerate services sector deregulation and small- and medium-sized enterprise consolidation.
In terms of monetary policy, it concluded the current accommodative stance is appropriate given the lack of inflation or financial stability concerns, and suggested normalization should not start until there is confidence that the output gap will close.
It also took a very careful approach to the government's intervention in the exchange market, stressing the importance of market-determined policies. It also said foreign exchange reserves are ample and there is no need for further accumulation.
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