Korea's economy has demonstrated strong resilience despite external shocks and domestic uncertainty. To deal with fiscal pressures from population ageing while sustaining productivity growth, Korea needs to strengthen fiscal institutions and invest in education and lifelong learning. Implementing better policies tailored to individual regions would reduce economic gaps between them, according to the latest OECD Economic Survey of Korea.
Growth is set to accelerate from 1.0% in 2025 to 2.6% in 2026 and 1.9% in 2027, driven by consumption, fiscal support and strong semiconductor exports. Due to the energy shock, inflation is projected to increase from 2.1% in 2025 to 2.6% in 2026, before easing to 2.2% in 2027.
Strengthening public finances will be key to stabilise public debt amid rising spending pressures from population ageing. Comprehensive tax reform, such as transitioning to a uniform corporate income tax rate and shifting property taxation from transaction-based taxes to recurrent ones, could boost growth, while rising carbon pricing would help meet climate targets. Prioritising indirect taxes and taxes on tobacco and alcohol can limit the drag on growth from raising additional revenue.
Investment in human capital through education and lifelong learning can drive productivity. Reducing the focus on high-stakes examinations to enter universities, the civil service and licensed occupations would help nurture skills such as critical thinking and learning-to-learn. Expanding and improving the quality of outside-of-school-hours care can reduce households' reliance on costly private tutoring. At the tertiary level, raising tuition fees alongside stronger public support would provide the resources needed to improve education quality and boost youth employability. Promoting regular employment and addressing seniority-based pay would encourage better job matching and investment in skills.
Regional differences are widening as jobs and services are increasingly concentrated in the Seoul Metropolitan Area. Reviving regional economic convergence will require a stronger regional policy response that expands opportunities across the country. Targeted investment in regional hubs can help create attractive places to live and work beyond the largest metropolitan areas. Strengthening regional universities to attract youth and generate positive spillovers on the regional economy, ensuring access to high-quality public services, and implementing well-designed housing policies are essential for improving the quality of life and supporting family formation across regions. Achieving these goals will require increased inter-ministerial and inter-municipal collaboration, along with greater fiscal autonomy for local governments.
