The International Monetary Fund(IMF) has raised its growth forecast for South Korea to three-point-two percent for this year.
An IMF mission led by Tarhan Feyzioglu, a senior economist at the IMF's Asia and Pacific Department, released the revised outlook during a briefing in Seoul on Tuesday, announcing the result of its annual discussion with Seoul government officials held since early this month.
The IMF’s previous growth estimate was three percent for this year and the next. The agency kept the 2018 outlook unchanged.
The IMF said South Korea’s short-term prospects are improving despite heightened geopolitical tensions in the region. It added that Asia's fourth-largest economy is showing improvement this year, following a slowdown in the second half of last year.
The IMF noted the recovery trend is backed by fiscal easing, demonstrated in record low interest rates on loans and low profitability of long-term bonds.
The recent trend in the economic outlook is that foreign institutions are more optimistic than domestic agencies, while it was usually the other way around until now.
Global investment banks Goldman Sachs and JP Morgan also raised their growth outlook for Korea to 3.2 percent this year.
However, the Bank of Korea and the Finance Ministry maintain their outlook at 3 percent, while other local think tanks predict growth of between 2.5 and 2.8 percent this year.
Based on the IMF forecast, the Korean economy is expected to post growth in the 3 percent range without much difficulty.
The IMF said that Korea's growth momentum is "very strong" and especially in the third quarter, investment growth remained stronger than expected. It predicted the recovery momentum to continue.
But the agency also pointed to structural problems, noting that South Korea's growth potential dipping below 3 percent due to the population structure, slowing productivity growth, polarization and increasing inequality.
To tackle this problem and support growth, the IMF advised to continue expansionary fiscal policies and monetary easing, as well as structural reform of the labor market, such as more flexibility regarding full-time employees.
The fiscal easing portion of the IMF recommendation is in line with South Korea's policy guideline as shown in a supplementary budget execution and interest rate levels.
However, the call to improve labor market rigidity differs from the government stance, but some experts say that Seoul should adhere to the advice.