By Kim Soo-yeon
SEOUL, March 26 (Yonhap) -- The International Monetary Fund (IMF) on Friday sharply raised its growth outlook for South Korea this year, citing robust exports and the country's fiscal policy support amid the pandemic.
The IMF forecast the South Korean economy to grow 3.6 percent this year, up from its estimate in January of 3.1 percent.
The upward revision came as the IMF issued a report on the outcome of its annual consultation with South Korea held in January.
The IMF said Asia's fourth-largest economy is expected to recover this year, "supported by a gradual normalization of COVID-related factors and stronger external demand." It also took into account the anticipated impact of the latest 15 trillion-won (US$13 billion) extra budget.
The IMF's projection is well above the growth estimates made by the Organization for Economic Cooperation and Development (OECD) and the Bank of Korea (BOK).
The OECD expected Asia's fourth-largest economy to expand 3.3 percent this year, and the BOK forecast the Korean economy to grow 3 percent.
The South Korean economy contracted 1 percent last year, the first annual retreat since the 1997-98 Asian financial crisis, amid the COVID-19 pandemic.
But it contracted by a smaller margin than in most other advanced nations.
The Korean economy is on a recovery track this year, aided by solid exports of chips and cars.
Exports, which account for half of the economy, rose 9.5 percent on-year in February to extend their gains for the fourth consecutive month.
But the country's domestic demand and the job market remain sluggish, with the service sector hit hard by the pandemic.
Against this backdrop, the Washington-based international organization recommended that South Korea maintain its expansionary fiscal policy and accommodative monetary stance to help the economy recover faster.
IMF executive directors "underscored the need for continued supportive macroeconomic policies to help the economy normalize faster, safeguard financial stability, and foster greener and more inclusive growth," it said.
The organization said most of its executive directors viewed the BOK's monetary policy stance as broadly appropriate, while "a few saw merit in additional easing to help underpin the recovery and bring inflation closer to target."
Last month, the BOK froze its key interest rate at a record low of 0.5 percent amid lingering economic uncertainties over the pandemic. The bank aims to keep annual inflation at 2 percent over the medium term.
The IMF forecast South Korea's consumer prices to grow 1.2 percent this year, following a 0.5 percent gain last year. The BOK put its 2021 inflation outlook at 1.3 percent.
The IMF also voiced concerns about Korean households' high indebtedness, raising the need for authorities to tighten prudential policies further in the event of rapid debt growth.
The IMF said economic uncertainty remains high, depending on the development of the pandemic.
"Renewed surges in infections and slower vaccinations -- either domestically or abroad -- are the principal downside risk to the economy, while faster-than-expected virus containment and continued resilient external demand are the main upside risks," it noted.
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