Extra Spending and Stronger Exports to Support South Korea’s Economy, Reports Reuters

By Kevin Yao

CHENGDU, China – South Korea’s economy is projected to grow by approximately 2.8 percent this year, fueled by additional government spending and stronger export performance, according to Finance Minister Yoo Il-ho.

“I am confident that we can achieve a growth rate of 2.8 percent this year, particularly with the planned introduction of a supplementary budget,” Yoo remarked during a meeting of G20 finance ministers and central bankers.

The Bank of Korea has adjusted its growth forecast for 2016 down to 2.7 percent from 2.8 percent, while the finance ministry maintains its projection of 2.8 percent. Yoo indicated that the proposed supplementary budget, valued at 11 trillion won (around $9.69 billion), along with other fiscal stimulus efforts, could enhance economic growth by 0.2 to 0.3 percentage points.

The government intends to present this extra spending plan to parliament next week, with Yoo expressing optimism that it will receive approval by August 12. This additional funding aims to create 68,000 new jobs, counteracting significant job losses in the beleaguered shipping and construction sectors.

Yoo also anticipates a rebound in South Korea’s exports in the latter half of the year, driven by recovering global demand. “Starting next month, we expect to witness an increase in exports, along with a likely rise in imports compared to last year,” he stated.

South Korea experienced a decline in exports for the 18th consecutive month in June; however, the decrease occurred at the slowest rate in a year. The ramifications on global growth following the UK’s exit from the EU have prompted analysts and policymakers to adopt a cautious stance regarding future economic prospects.

To ensure that economic growth remains on course, Yoo emphasized the necessity of employing both fiscal and monetary policies. Last week, the Bank of Korea maintained interest rates after an unexpected cut in June, downgraded its growth and inflation forecasts slightly, and kept the option open for further easing as it assesses the government’s efforts to implement the supplementary budget.

Yoo also remarked that concerns about a sudden slowdown in China’s economy appear to have lessened, suggesting that it may be on a path to a soft landing.

Additionally, South Korea is discussing with various countries the possible expansion of existing currency swap agreements, although no specific details were provided. In terms of the global economy, Yoo highlighted the importance of policy coordination among G20 countries to foster growth and address the rise of protectionism, which poses a significant challenge to South Korea’s export-driven economy.

“Cooperation is more crucial than ever due to the trends against globalization and the proliferation of protectionism,” he articulated.