South Korea urged to guard against complacency as it moves towards recovery

11 Aug 20

The OECD has warned South Korea against complacency despite the country suffering the least severe recession of its member countries following the Covid-19 outbreak.

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Seoul, South Korea

Seoul, South Korea

 

The international organisation has urged South Korea to keep supporting its citizens through the economic crisis caused by Covid-19, while praising the country for its swift response when the pandemic began.

In its latest economic survey of Korea, the OECD said the country’s policymakers cannot rest on their laurels despite the limited damage the economy has suffered so far.

“Thanks to the government’s prompt response to the pandemic, South Korea is experiencing the shallowest recession among OECD countries,” the organisation said in a statement.

“However, the recovery will be slow and uncertainty remains high.”

South Korea rushed to introduce lockdown measures when an outbreak was confirmed and, combined with well-followed public health advice, this led to the east Asian country experiencing a much lower number of virus cases than many of its OECD peers.

Government support for workers and businesses, particularly in export sectors that drive the economy, means the budget deficit is expected to reach 3% this year.

But public finances were in a good position before the pandemic, the OECD said. Debt was about 40% of GDP and in 2019 the government recorded a budget surplus.

“Sound public finances mean there is room for fiscal stimulus,” the OECD said.

The survey suggested focusing investment in some of the areas featuring in the recent Korean New Deal, such as 5G telecommunication and artificial intelligence.

In the long-term, the report warned of “looming pressures” caused by an ageing population, with South Korea’s old-age dependency ratio (the number of elderly retirees compared to the working age population) set to become the highest in the OECD by 2060.

The paper also said the share of elderly people in relative poverty (i.e. living on less than half of the country’s median household income) is the highest among the OECD already.

It recommended increasing the basic pension and focusing on addressing unemployment among disadvantaged groups, along with the gender pay gap, to help address these problems for the future.

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