An acceleration of domestic demand, combined with continued buoyant exports, is projected to keep economic growth at around 5% in 2008-09. Strong demand from other Asian countries is sustaining export growth at double-digit rates, despite the appreciation of the won, which has helped to keep inflation below the Bank of Korea’s target zone.
Monetary policy should focus on the medium-term inflation target, while concerns about a possible bubble in the housing market need to be addressed through measures aimed at increasing supply. In this regard, price regulations on new houses, which were introduced to stabilise the real estate market, should be gradually phased out. Korea should maintain a flexible exchange rate policy, while adopting reforms to boost productivity growth, especially in the services sector.
No. 264/265, December 2007-January 2008
• OECD Economic Outlook No. 82, December 2007
• Visit www.oecd.org/korea
• All OECD Observer articles on Korea