SEOUL - THE International Monetary Fund on Tuesday revised up its forecast for South Korea's economic growth this year, saying the government's rapid stimulus efforts limited the impact of the global downturn.

The IMF forecast that South Korea's economy would contract by 3.0 per cent this year, an improvement on its earlier 4.0 per cent projection.

It also expects 2.5 per cent growth in 2010, up from an earlier forecast of 1.5 per cent.

A set of quickly deployed stimulus measures helped South Korea's economy post 0.1 per cent growth quarter-on-quarter in January-March, narrowly avoiding recession.

The government in March unveiled a 28.9-trillion-won (S$31.03 billion) extra budget, complementing additional spending announced earlier. It now expects a contraction of 1.5 per cent for this year.

'The authorities' rapid and comprehensive fiscal, monetary and financial policy response helped limit the depth of the downturn,' the IMF said in a statement.

The IMF urged South Korea to step up corporate restructuring while maintaining its current fiscal policy 'until a self-sustained recovery is clearly established.' 'Fiscal stimulus has been effective and may need to be maintained in 2010 given the prospects for only a moderate recovery next year,' it said.

'The likely moderate pace of global growth is expected to limit the strength of exports going forward, while weak labour market conditions suggest private domestic demand is also likely to recover only sluggishly.'

The IMF, however, cautioned that the outlook is subject to 'substantial uncertainty,' citing downside risks that could weigh on South Korea's economy including oil price hikes. -- AFP