The Organization for Economic Cooperation and Development on Monday cut its 2017 growth forecast of the South Korean economy to 2.6 percent from an earlier projection of 3 percent, citing a slower government spending next year.

In its latest global economic outlook, the OECD said Asia’s fourth-largest economy will slightly recover its growth momentum in 2018 with 3 percent growth, while the global economy is expected to attain 3.3 percent growth in 2017 and 3.6 percent growth in 2018.

“Concerns about rapidly rising household debt suggest fiscal policy may now be better placed to take some of the burden. The planned budget consolidation in 2017 will restrain growth,” the OECD said in the report on Korea.

“Instead, to support growth, government spending should be increased beyond the levels set in the national fiscal management plan,” it said.

OECD’s 2017 growth projection for Korea is lower than 3 percent forecast by the International Monetary Fund. The Bank of Korea also recently revised down 2017 growth prediction to 2.8 percent, while the Finance Ministry expects 3 percent growth.

Global organizations as well as economic think tanks have made downward revisions on Korea’s growth outlook for next year, citing weakened exports and sluggish domestic demand.

The OECD urged the Korean government to use more expansionary macroeconomic policies and push structural reforms.

Korea has enough room to increase government spending in the near term on the back of continued government surpluses and low public debt at around 45 percent of gross domestic product, the OECD said.

“Structural reforms are needed to boost productivity and labor participation as the working-age population begins to decline,” it added.

The OECD said Korea’s inflation will rise from 0.9 percent in 2016 to 1.8 percent, near the central bank’s 2 percent target, in 2018. The current account surplus in proportion to GDP will decline from 7.1 percent in 2016 to 6.5 percent in 2018, it said.

On the world economy, the OECD predicted that global output growth will pick up from 3.3 percent in 2017 to 3.6 percent in 2018, mainly on expansionary fiscal policies of major economies, including the US, and more stable commodities prices.

By Kim Yoon-mi (yoonmi@heraldcorp.com)