This Survey is published on the responsibility of the Economic and Development Review Committee (EDRC) of the OECD, which is charged with the examination of the economic situation of member countries.The economic situation and policies of Korea were reviewed by the Committee on 14 March 2018. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 24 May 2018.The Secretariat’s draft report was prepared for the Committee by Randall S. Jones, Jae Wan Lee and Haruki Seitani under the supervision of Vincent Koen. Research assistance was provided by Lutécia Daniel. Secretarial assistance was provided by Sisse Nielsen and Mercedes Burgos.The previous Survey of Korea was issued in May 2016.Information about the latest as well as previous Surveys and more information about how Surveys are prepared is available at www.oecd.org/eco/surveys.

Korea faces well-being challenges

After contracting in 2015, the North Korean economy grew 3.9% in 2016, the fastest rate since 1999, despite a further contraction in its foreign trade (). Manufacturing and mining (58% of GDP) were supported by the “speed battle” campaign of mass mobilisation to speed up production. The campaign included output quotas at state-owned enterprises, which required the accelerated use of resources. Agriculture also recovered following the 2015 drought. Continued marketisation through the dollarisation of the North Korean economy has supported economic activity and helped stabilise the unofficial exchange rate and the rice price (Lee, 2017a). Faster growth in 2016 boosted real GDP to its highest level since 1991. Nevertheless, per capita gross national income in the South is 21.9 times higher than in the North (), raising concern about the potential cost of economic rapprochement. Production and investment growth appears to have declined on a year-on-year basis in the first half of 2017, reflecting renewed droughts, the payback from the “speed battle” campaign and the tightening of sanctions (Lee, 2017b).

Korea’s population ageing, projected to be the fastest in the OECD, will have a significant fiscal impact due to increases in public pension benefits and expenditures on health and long-term care. This annex integrates long-term projections by the National Pension Research Institute (NPRI) and the National Assembly Budget Office (NABO) to illustrate the overall impact of population ageing on the general government financial balance. The conclusion is that government net debt would soar to nearly 200% of GDP by 2060 in the absence of other revenue increases.

This Annex reviews actions taken on recommendations from the 2016 OECD Economic Survey of Korea that are not covered in tables within the main body of the Key Policy Insights chapter. Recommendations that are new in this Survey are listed in the Key Recommendations box and at the end of the thematic chapters.