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OECD retains S. Korea's economic growth forecast at 2.6 pct in 2017

All News 17:30 June 07, 2017

SEJONG, June 7 (Yonhap) -- South Korea's economy is expected to grow 2.6 percent this year, a Paris-based international organization forecast Wednesday, unchanged from its earlier outlook amid improving exports and consumer sentiment.

For next year, the Organization for Economic Cooperation and Development (OECD) revised down the growth forecast to 2.8 percent from 3 percent set seven month earlier.

"Output growth is projected to edge up 2.6 percent in 2017 to 2.8 percent in 2018, thanks in part to faster world trade, which will boost exports and business investment, helping to offset a gradual decline in the growth of residential investment," the OECD said in a biannual report.

It said the modest growth is supported by an upturn in exports, which have been on a roll since November last year on the back of brisk overseas sales of semiconductors. A steady increase in corporate investment is also bolstering strong outbound shipments.

But the OECD noted that external and internal risks such as the emergence of trade protectionism, diplomatic tensions with China and mounting household debt will likely weigh heavily on Asia's fourth-largest exports-oriented economy.

Over Seoul's decision to deploy a U.S.-led missile system, the Beijing government's retaliatory measures against Korean-made consumer goods and a ban on tour groups may drag down the country's GDP growth by 0.2 percentage point, as China accounts for a quarter of South Korean exports, it added.

"Downside risks to the outlook include heightened geopolitical tensions and trade protectionism, notably a possible revision of the U.S.-Korea free trade agreement," said the OECD. "On the domestic side, the main risks relate to a hard landing in the housing market or a failure to rein in household debt."

The organization called for a more expansionary fiscal policy and structural reform to provide a further boost to the economy.

"With the gradual withdrawal of monetary policy accommodation, fiscal policy should be used more actively to support growth, particularly given Korea's low level of government debt and persistent budget surplus," it said. "Structural reforms, including regulatory reform in the service sector, are needed to boost labor productivity growth."

Meanwhile, the South Korean government and the central bank both had a growth forecast of 2.6 percent for 2017, while the International Monetary Fund (IMF) revised it up to 2.7 percent.


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