South Korea’s economy continues to perform well due to strong domestic demand – consumer spending, public spending and fixed investment. While consumer sentiment continues to be reasonably strong, recent business sentiment indicators are showing some signs of weakness owing to ongoing global trade tensions; the purchasing managers’ index for the manufacturing sector has been in contractionary territory in recent months.
Given the external sector’s significance to the economy, the global trade developments would be closely monitored in the months ahead, noted Scotiabank in a research report. The company’s real GDP rose 2.8 percent year-on-year in the first quarter of 2018, consistent with the pace seen in the final quarter of last year.
“We expect South Korea’s output to rise by 2¾ percent y/y in 2018–19 following a 3.1 percent expansion in 2017”, said Scotiabank.
The fiscal policy stance of South Korea continues to be growth-supportive. The parliament passed a USD 3.5 billion supplementary budget on 21 May. President Moon Jae-in’s government will be directing the additional spending on measures that would reduce youth unemployment; joblessness among young South Koreans continue to be elevated at about 10 percent. In spite of such accommodative policies, South Korea’s government finances are strong, giving the administration room to manuver if global trade tensions rise and adversely affect the economy’s growth prospects.
The IMF projects that South Korea’s fiscal surplus will average 2 percent of GDP in 2018-2019. In the meantime, gross public debt is likely to linger at a comparatively low level of 38 percent of GDP in the next two years.
