2007 OECD Economic Surveys: Korea 2007

image of OECD Economic Surveys: Korea 2007

This 2007 edition of OECD's periodic Economic Survey of Korea examines key economic challenges now being faced there. After an examination of recent macroeconomic trends, it looks at monetary policy, housing and regional policies, the fiscal situation and public spending in the context of rapid population ageing, and enhancing the globalisation of Korea.

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Macroeconomic developments and policies affecting monetary conditions

Economic growth slowed to less than a 4% annual rate in the second half of 2006, largely due to weak private consumption and a decline in housing construction. The economy is projected to pick up gradually, with growth of about 4¼ per cent in 2007. Korea should pursue a flexible exchange rate policy by limiting intervention in foreign exchange markets. The liberalisation of controls on capital outflows should aim at improving long-run efficiency rather than moderating upward pressure on the won in the short run. The Bank of Korea should focus on achieving its new medium-term target for overall CPI inflation and avoid using monetary policy as a tool to stabilise real estate prices in some parts of the capital region, as further hikes in the short-term interest rate would have a negative impact on the increasingly indebted household and small and medium-sized enterprise sectors.

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