IMF says S. Korea's growth outlook "challenging"

The International Monetary Fund (IMF) said Friday that future growth outlook for the South Korean economy remains "challenging" from both a cyclical and structural standpoint.

The IMF mission visited Seoul between Feb. 2 and Feb. 13 to hold an annual consultation meeting with South Korean government officials, announcing a conclusion statement Friday, according to country's finance ministry.

"Domestic demand remains sluggish, inflation low, and external uncertainties have increased," the statement said.

"From a longer-run perspective, relatively weak non- manufacturing productivity has been accompanied by a heavy, and likely unsustainable, reliance on manufacturing exports for growth. "

The statement cited the economy's exposure to external shocks and demographic headwinds from a rapidly aging population as negative factors.

The IMF revised down South Korea's growth outlook for 2015 to 3. 7 percent from an earlier estimate of 4 percent this month. Bank of Korea (BOK) also downgraded its growth outlook from 3.9 percent to 3.4 percent.

As one of the world's largest importers of oil products, South Korea will clearly benefit from lower oil prices, but it may take some time before this translates into growth through higher investment and consumption, according to the IMF.

The organization said the prolonged weakness of the Japanese yen has been a challenge to some export sectors of South Korea although the strong dollar could provide some buffer.

As for massive household debts, the IMF said overall household debt has been rising. But, it said, this has been matched by a corresponding increase in financial assets, not reflecting a rise in borrowing to finance consumption as seen in many other advanced countries leading up to the global financial crisis.

The organization said it does not see debt levels as a near- term threat to the South Korean economy. Endi