Korea’s strong recovery from the 2008 global recession has been driven by buoyant export growth, due to the won’s depreciation and demand from China, and an effective policy response. The fiscal stimulus was the largest in the OECD area, while monetary policy and measures to support financial institutions helped to prevent a liquidity crunch. Output is projected to grow 5¾ per cent in 2010 and 4¾ per cent in 2011, as a double-digit increase in exports leads to stronger domestic demand growth. With the recovery on track, government spending is being reduced in 2010, which is necessary if Korea is to achieve its medium-term target of cutting the fiscal deficit to close to zero by 2013 and keeping gross government debt below 40% of GDP. Meanwhile, the policy interest rate has remained at a record low of 2% for more than a year. Given the strength of the expansion, it is important to begin normalising interest rates to ensure that inflation remains within the central bank’s 2% to 4% medium-term target.