Korea is rebounding gradually from the downturn in the first half of 2003. Output growth at an 11 per cent seasonally-adjusted annual rate in the fourth quarter of 2003 suggests a strong recovery. However, the large gap between buoyant exports and still sluggish domestic demand, with private consumption still declining, indicates that a full-fledged recovery is not yet underway. On the other hand, there is not much slack in the labour market, where unemployment is at a low level and wage growth has been high. These conflicting signals make it exceptionally difficult to project the path of the recovery and the appropriate macroeconomic policies. This chapter begins by providing short-term projections ...