SEJONG, May 14 (Yonhap) -- The International Monetary Fund (IMF) has said South Korea's fiscal policy should remain expansionary in the medium term to support growth, job creation and external rebalancing.
"Korea has ample fiscal space for additional stimulus, and in this context, (IMF directors) broadly welcomed the planned supplementary budget and the authorities' readiness to take further action as necessary to achieve the growth target and strengthen social safety net," the IMF said in a report posted on its website.
South Korea has projected its economy to expand between 2.6 percent and 2.7 percent this year, but the Bank of Korea has trimmed its economic outlook for the year to 2.5 percent from 2.6 percent.
In the first quarter of the year, the economy unexpectedly contracted an estimated 0.3 percent from three months earlier, marking the worst performance in a decade.
The IMF expects the economy to expand at rate of 2.6 percent.
Asia's fourth-largest economy expanded 2.7 percent in 2018, down from a solid 3.1 percent the previous year.
The IMF said South Korea's growth is projected to slide to around 2.6 percent in 2019, citing an expected deterioration in external demand.
It said export growth is projected to be weak, reflecting a deteriorating tech cycle and a slowdown in demand from China, South Korea's largest trading partner.
"Korea's economy has strong fundamentals, supported by robust policy frameworks and a resilient financial system," the IMF said. "Nevertheless, cyclical and structural headwinds amid the challenging global environment have hampered growth prospects with risks to the downside."
The assessment by the IMF executive board came two months after an IMF delegation visited Seoul and met with key South Korean officials.
It also came amid uncertainty on when South Korea's parliament could vote on a 6.7 trillion-won (US$5.6 billion) extra budget bill due to a political standoff over the ruling party's attempt to fast-track four major bills, including one on electoral reform.
Last month, the South Korean government proposed the extra budget to cope with an economic slowdown and fine dust air pollution.
Executive directors of the IMF also agreed that South Korea's monetary policy should remain accommodative, and most directors saw room for further easing of monetary policy.
The Bank of Korea increased its main policy rate by 25 basis points to 1.75 percent in November 2018 and has kept it on hold since.
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