Country Forecast South Korea February 2018 Updater

Country Forecast South Korea February 2018 Updater

  • February 2018 •
  • Report ID: 5345085 •
  • Format: PDF


  • Moon Jae-in of the liberal Minjoo Party won the presidential election in May 2017. The Economist Intelligence Unit expects him to serve out his full term, which is constitutionally limited to five years. An able bureaucracy will support efficient policy implementation.
  • With politics remaining heavily polarised, the next parliamentary election, due in 2020, will prove challenging for Minjoo to secure the majority required to pass laws unilaterally. Nevertheless, should progress on Minjoo's ambitious economic agenda continue at a steady pace, the party could increase its seat count at the expense of centrist political parties.
  • Security ties between South Korea and the US will remain strong, owing to North Korea's continued ramping-up of its nuclear capabilities. In parallel, Moon Jae-in's efforts to engage the North Korean regime will offer an avenue to de-escalate the situation on the Korean peninsula. Despite warming ties with China, it will remain difficult for South Korea to regard its influential neighbour as a reliable security partner.
  • The Moon Jae-in administration will pursue an ambitious demand-driven economic agenda through increased government spending and redistributive policies. Despite strong momentum to curb the role in the economy of the chaebol (family-run conglomerates), and renewed support for small and medium-sized enterprises, we expect the dominance of these enterprises to continue over the forecast period.
  • The Bank of Korea (South Korea's central bank) will seek to pursue a modest monetary policy tightening cycle in 2018-22, but this will be interrupted to help the domestic economy to weather the impact of a slowdown in the US in 2020.
  • Real GDP will grow by an annual average of 2.8% in 2018-22. In the absence of a significant rebalancing away from exports and towards domestic demand, the economy will remain hostage to ebbs and flows in global trade. Increasing indebtedness among households, along with subdued wage growth in the dominant manufacturing sector, will act to constrain private consumption.
  • The current-account balance will stay in the black, even as exports benefit from overall supportive global demand. South Korea will nonetheless face greater competition on certain key export items from peers in the region, including China.






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