OECD lowers S. Korea’s 2017 growth forecast to 2.6 pct on slower government spending

The Organization for Economic Cooperation and Development (OECD) on Monday lowered South Korea's 2017 growth forecast to 2.6 percent from an earlier projection of 3 percent. The latest forecast is lower than that of the International Monetary Fund (IMF) and Bank of Korea (BoK) at 3 percent and 2.8 percent respectively.

OECD called for more expansionary macroeconomic policies from the Korean government to push structural reforms. It noted that South Korea's economy will slightly recover its growth momentum in 2018 with 3 percent growth.

“Concerns about rapidly rising household debt suggest fiscal policy may now be better placed to take some of the burden. The planned budget consolidation in 2017 will restrain growth,” the OECD said in the report on Korea.

The OECD noted that Korea has enough room to increase government spending in the near term on the back of continued government surpluses and low public debt at around 45 percent of gross domestic product (GDP).

The OECD expects Korea’s inflation to edge closer to the central bank’s 2 percent target, in 2018. OECD forecasts inflation to rise from 0.9 percent in 2016 to 1.8 percent in 2018. It said that the nation's current account surplus in proportion to GDP will decline from 7.1 percent in 2016 to 6.5 percent in 2018.