AMRO "High Household and Government Debt Are Risk Factors for South Korea's Growth"

Choi Sang-mok, Deputy Prime Minister for Economic Affairs and Minister of Strategy and Finance, visited the Nonghyup Hanaro Mart Seongnam branch in Seongnam, Gyeonggi Province on the 25th to check prices, inspecting price trends of major items such as fruits and vegetables. Attending the on-site price inspection were Song Mi-ryeong, Minister of Agriculture, Food and Rural Affairs, and Kang Ho-dong, Chairman of Nonghyup. Seongnam ? Photo by Jo Yong-jun jun21@

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The ASEAN+3 Macroeconomic Research Office (AMRO) has projected South Korea's economic growth rate for this year at 2.3%. It identified high household debt and government debt as long-term growth risk factors and recommended enhancing fiscal soundness and continuing structural reform efforts.

According to the Ministry of Economy and Finance on the 25th, AMRO released the "2023 South Korea Annual Consultation Report" containing these details. AMRO is an international organization that analyzes and monitors the economic trends of ASEAN+3 and supports the economic and financial stability of its member countries.

AMRO forecasted that despite a slowdown in private consumption and facility investment, South Korea's economy will grow by 2.3% this year, an increase of 0.9 percentage points from the previous year (1.4%), driven by export growth due to the semiconductor market recovery.

The inflation rate is expected to ease to 2.5%, down 1.1 percentage points from last year (3.6%), due to a gradual decline in short-term inflation expectations.

Short-term risk factors were identified as prolonged high interest rates caused by elevated price levels, recessions in major countries, and slower-than-expected economic recovery in China. In the medium to long term, AMRO pointed out risks such as continued geopolitical tensions leading to sluggish exports and investment, high household debt levels, and increasing government debt.

AMRO recommended that the government maintain a restrictive monetary policy stance and financial stability, enhance fiscal soundness, and continue structural reform efforts to sustain stable price levels and support economic growth.

First, it assessed that maintaining the current restrictive monetary policy stance is desirable amid expectations that inflation will exceed the target for a considerable period. At the same time, it mentioned that monetary policy should be ready to be adjusted considering external economic uncertainties.

It also emphasized that credit support for vulnerable groups such as small and medium-sized enterprises should be temporary and suggested that macroprudential measures on the housing finance market need to be finely adjusted according to future housing market conditions.

Considering this year's economic recovery trend, AMRO evaluated the government's efforts to restructure spending and legislate fiscal rules as appropriate measures and stressed the importance of securing fiscal sustainability in the medium to long term.

Finally, to promote long-term growth, it stated the need to continue structural reforms, including fostering innovative industries such as the semiconductor industry, promoting human resource development, and strengthening supply chain resilience.

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