The IMF’s mission team to South Korea said the outlook for Asia’s fourth-largest economy was improving despite elevated geopolitical tensions as global demand for its information technology products supported exports growth while private consumption was picking up.
Ballistic missile tests by North Korea and its sixth and largest nuclear test on Sept. 3 in defiance of UN Security council resolutions have been destabilising investor sentiment in the South Korean economy.
The IMF raised its 2017 GDP estimate to 3.2 percent from 3 percent projected in September. The Bank of Korea’s growth outlook is at 3 percent.
“The cyclical recovery is expected to continue,” the IMF said in a statement concluding its annual review of the South Korean economy.
IMF mission chief Tarhan Feyzioglu stressed that fiscal and monetary policies should remain accommodative to support growth as expenditure on social welfare and structural reforms remains important for overall growth.
Asked if interest rate hikes by the Bank of Korea would mean tightening, Feyzioglu said monetary policy would remain accommodative even after a couple of rate increases as the current policy rate is at a record-low of 1.25 percent.
The market consensus is that the BOK will raise interest rates for the first time in more than six years at its Nov. 30 meeting after the economy posted its fastest growth in seven years in the third quarter.