South Korea Unveils $15.3bn Stimulus Plan
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The South Korean government on Tuesday unveiled a 17.3 trillion won ($15.3 billion) stimulus plan to boost slowing growth in Asia’s fourth largest economy, which has been hit by a slowdown in exports and sluggish capital investment.
The extra budget includes 12 trillion won to cover a shortfall in revenues and an additional 5.3 trillion won in new spending, the finance ministry said in a statement yesterday.
The South Korean government on Tuesday unveiled a 17.3 trillion won ($15.3 billion) stimulus plan to boost slowing growth in Asia’s fourth largest economy, which has been hit by a slowdown in exports and sluggish capital investment.
The extra budget includes 12 trillion won to cover a shortfall in revenues and an additional 5.3 trillion won in new spending, the finance ministry said in a statement yesterday.
The spending is expected to boost GDP growth by 0.3 percent this year and create 40,000 new jobs, as well as stabilise food prices, strengthen welfare programmes and improve national defence in the face of heightened tensions with North Korea.
Finance minister Hyun Oh-seok said anemic growth in recent years is “aggravating people’s hardship and weakening economic vitality” in the country.
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Last month, the central bank cut the country’s growth forecast for the year to 2.8 percent from 3.2 percent.
“This is a much-needed move,” said Kwon Young-sun, a Nomura economist. “It may not boost growth substantially but will help sustain the economy in the medium term amid the various pressures and challenges that it is facing.”
The biggest drag on growth has been a slowdown in exports, which accounts for more than half of the country’s total economic output, triggered by the yen’s dramatic decline and weaker demand in key markets such as the United States and the eurozone.
South Korean officials are particularly sensitive to Japan’s recent monetary stimulus, which has brought a significant drop in the yen’s value. The Korean won has gained nearly 8 per cent against the yen this year after surging more than 20 per cent last year, threatening Korean manufacturers’ price competitiveness against Japanese rivals.
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However, analysts say more structural reforms are needed to ensure the country’s sustainable economic growth. On Monday, McKinsey said that South Korea is facing various economic and social challenges that need to be addressed, including high household debt, unprofitable small and medium businesses as well as an underdeveloped service sector.
“[South] Korea needs to reboot and make some fundamental changes to go to the next level. Without a fundamental change, the growing inequality will become an even bigger social problem and growth will be stagnant,” said Choi Wonsik, head of McKinsey in Seoul.
