The Korea Times close
National
  • Politics
  • Foreign Affairs
  • Multicultural Community
  • Defense
  • Environment & Animals
  • Law & Crime
  • Society
  • Health & Science
Business
  • Tech
  • Bio
  • Companies
Finance
  • Companies
  • Economy
  • Markets
  • Cryptocurrency
Opinion
  • Editorial
  • Columns
  • Thoughts of the Times
  • Cartoon
  • Today in History
  • Blogs
  • Tribune Service
  • Blondie & Garfield
  • Letter to President
  • Letter to the Editor
Lifestyle
  • Travel & Food
  • Trends
  • People & Events
  • Books
  • Around Town
  • Fortune Telling
Entertainment
& Arts
  • K-pop
  • Films
  • Shows & Dramas
  • Music
  • Theater & Others
Sports
World
  • SCMP
  • Asia
Video
  • Culture
  • People
  • News
Photos
  • Photo News
  • Darkroom
  • The Korea Times
  • search
  • Site Map
  • E-paper
  • Subscribe
  • Register
  • LogIn
search close
  • The Korea Times
  • search
  • Site Map
  • E-paper
  • Subscribe
  • Register
  • LogIn
search close
Finance
  • Companies
  • Economy
  • Markets
  • Cryptocurrency
Sun, August 14, 2022 | 11:38
Economy
[Contribution] Strong policies help Korea navigate uncertain times
Posted : 2022-04-10 16:37
Updated : 2022-04-10 16:37
Print Preview
Font Size Up
Font Size Down

                                                                                                Krishna Srinivasan, the Deputy Director of the Asia and Pacific Department at the IMF
Krishna Srinivasan, the Deputy Director of the Asia and Pacific Department at the IMF

By Krishna Srinivasan and Martin Kaufman

Korea has been recovering well from the pandemic ― a testament to its strong economic fundamentals and appropriate policy responses. Economic output has surpassed pre-crisis levels despite multiple waves of infection. The recovery was supported by the effective containment of the pandemic, including rapid vaccinations last year and pursuing proactive economic policy support, which helped minimize economic scarring, sustain income growth and maintain financial stability. Given Korea's high degree of global integration, strong external demand has also provided support to the recovery.

Before the war in Ukraine, Korea's growth had been expected to remain robust this year and next, absorbing any remaining economic slack. Inflation had been projected to return gradually to target by next year, as reflected in the recent IMF report. But significant uncertainties had been already clouding the outlook, with downside risks arising mainly from pandemic-related disruptions to supply chains, geopolitical uncertainties and rising interest rates in major advanced economies. Moreover, Korea was facing domestic downside risks linked to weakening economic activity from rising numbers of COVID-19 infections, elevated household debt and real estate prices, as well as rising inflation.

                                                                                                Krishna Srinivasan, the Deputy Director of the Asia and Pacific Department at the IMF
Martin Kaufman, the Korea Mission Chief and Assistant Director of the Asia and Pacific Department at the IMF
The effects of Russia's invasion of Ukraine and related sanctions have exacerbated concerns about stagflation. Specifically, the increases in commodity prices, particularly energy, are likely to fuel inflationary pressures even as the adverse impact of the war on trading partners could significantly weigh on economic activity in Korea. So far, however, Korea's recovery appears relatively resilient even amid rising inflationary pressures.

Against this backdrop, policy normalization remains appropriate, given Korea's relatively advanced recovery and rising inflation. But the pace should be balanced against the fast-evolving global conditions. In particular, the pace of monetary policy normalization should continue to be calibrated to ensure that inflation stabilizes at its target and expectations remain well-anchored.

Fiscal policy should be broadly neutral while continuing to provide targeted support for affected sectors, as needed. Macroprudential policies should continue to guard against systemic financial risks, notably to contain the buildup of vulnerabilities owing to the red-hot housing market and elevated levels of household debt.

Should risks to the outlook materialize, Korea is well placed to navigate challenging global conditions. Fiscal policy has ample space to provide further economic support, notably targeted to sectors facing stress. There's also room for monetary stimulus, if warranted, while further enhancing communications through forward guidance can help alleviate potential challenges if global supply disruptions further exacerbate inflationary pressures and hinder economic activity.

As global risks abate, the policy focus should shift to structural reform priorities to reinvigorate potential growth and foster greater inclusion, including in the context of the Korean New Deal. Renewed structural reform momentum, including the further articulation and implementation of this initiative, will be important in transitioning to life beyond the pandemic.

Reinvigorating long-term growth and fostering inclusion requires recalibrating policies to support productivity growth and innovation. It also demands providing transitory support amid reforms to address product, services and labor market rigidities, and ensuring that Korea's human capital remains a central pillar of the transformation process.

In this context, fiscal policy should be anchored in a medium-term framework that stabilizes public debt ― considering the expected implications of demographics, structural transformation costs and the potential need for additional fiscal support when necessary.

Krishna Srinivasan is Deputy Director of Asia and Pacific Department at the IMF. Martin D. Kaufman is the Korea Mission Chief and Assistant Director of the Asia and Pacific Department at the IMF.


Emaillkm@koreatimes.co.kr Article ListMore articles by this reporter
 
LG
  • Seoul City to retrofit manholes to prevent fatal falls during floods
  • Ruling party politicians' visits to flood-damaged areas cause stir
  • Yoon pardons Samsung chief, other business tycoons to 'overcome economic crisis'
  • Why has Apple Pay been unavailable in Korea?
  • Korea lacks data to operate autonomous vehicles
  • Disney beats Netflix in streaming subscribers
  • Lotte Chilsung Beverage CEO's leadership questioned over numerous scandals
  • Korean 'jang,' Japanese miso soup turn historic animosity into tasty friendship
  • Star novelist's 'Harbin' on Korean independence fighter becomes bestseller
  • [Exclusive] KDB accelerates drive to set up new hub in EU
  • Interactive News
  • With tough love,
  • 'Santa dogs' help rebuild burnt forests in Andong
  • 'Santa dogs' help rebuild burnt forests in Andong
  • A tale of natural wine
    • Death of young webtoon artist sparks controversy over harsh working conditions Death of young webtoon artist sparks controversy over harsh working conditions
    • 'Good Doctor' director to debut Netflix's high-strung suspense series, 'A Model Family' 'Good Doctor' director to debut Netflix's high-strung suspense series, 'A Model Family'
    • Reality shows go abroad again amid eased COVID-19 travel restrictions Reality shows go abroad again amid eased COVID-19 travel restrictions
    • Musical 'Kinky Boots' tells people to love themselves as they are Musical 'Kinky Boots' tells people to love themselves as they are
    • Late Samsung chairman's collection highlights painter Lee Jung-seop as family man Late Samsung chairman's collection highlights painter Lee Jung-seop as family man
    DARKROOM
    • Ice is melting, land is burning

      Ice is melting, land is burning

    • Tottenham 6-3 Team K League

      Tottenham 6-3 Team K League

    • Afghanistan earthquake killed more than 1,000

      Afghanistan earthquake killed more than 1,000

    • Divided America reacts to overturn of Roe vs. Wade

      Divided America reacts to overturn of Roe vs. Wade

    • Namaste: Yogis to celebrate International Yoga Day

      Namaste: Yogis to celebrate International Yoga Day

    The Korea Times
    CEO & Publisher : Oh Young-jin
    Digital News Email : webmaster@koreatimes.co.kr
    Tel : 02-724-2114
    Online newspaper registration No : 서울,아52844
    Date of registration : 2020.02.05
    Masthead : The Korea Times
    Copyright © koreatimes.co.kr. All rights reserved.
    • About Us
    • Introduction
    • History
    • Location
    • Media Kit
    • Contact Us
    • Products & Service
    • Subscribe
    • E-paper
    • Mobile Service
    • RSS Service
    • Content Sales
    • Policy
    • Privacy Statement
    • Terms of Service
    • 고충처리인
    • Youth Protection Policy
    • Code of Ethics
    • Copyright Policy
    • Family Site
    • Hankook Ilbo
    • Dongwha Group