South Korea revealed a 17.3 trillion won ($15.4 billion) stimulus to boost its slowly growing economy, which was affected negatively by strong competition due to the decline of yen. The government aims to spend 5.3 trillion ($4.7 billion) won to generate jobs, strengthen property prices, and support small businesses.
The newly sworn-in President, Park Geun-hye, stated that the stimulus package will help improve South Korea’s economic growth. The stimulus is expected to lift the country’s economy by 0.3 percent and would create 40,000 jobs. Additional 2 trillion won outside the supplementary budget will be available to support its economic initiatives, according to the Finance Ministry.
According to Reuters, the government’s supplementary budget will be proposed by the cabinet to the parliament of South Korea for approval. The 12 trillion won will be used to compensate the country’s budget deficit caused by lower than expected revenue.
During a briefing last week, Finance Minister Hyun Ok-sek said, “I believe that, in conjunction with other policies like the property market measures announced earlier, an extra budget of this magnitude will be enough to kindle hopes for an economic recovery.”
South Korea’s stimulus package, which only accounts for 0.4 percent of its annual gross domestic product (GDP), is significantly lower than Japan’s massive stimulus package of $116 billion (10.3 trillion yen) to help revive its economy from recession. According to Japanese Prime Minister Shinzo Abe, “beating deflation and curbing the yen’s appreciation is crucially important and a daring monetary policy is essential.”
South Korea is facing moderate risks compared with Japan and other bigger Asian neighbors. The country sees inflation as a bigger risk than deflation. Its currency is undervalued and it needs to increase household savings after years of over spending.
The country enjoyed 15 successive years of growing economy but North Korea’s nuclear war threat also puts South Korea’s economy at risk.
President Park’s government lowered its economic growth projection to 2.3 percent. According to the Finance Ministry, South Korea’s fiscal deficit is expected to account 1.8 percent of annual GDP, up from 1.4 percent last year. The government plans to sell bonds worth 8.8 trillion won to fund its extra budget.
South Korea’s central bank maintained its interest rate policy at 2.75 percent since the country is only facing moderate economic risks. The Bank of Korea reduced its growth estimate from 2.8 percent to 2.6 percent this year.
Ronald Man, economist at HSBC Holdings plc (NYSE:HBC) (LON:HSBA) in Hong Kong commented, “The government is trying to kick-start domestic activity. We expect that growth will rebound this year.” He believed that the country economy will grow by more than 3 percent.
South Korea recorded a 2 percent growth rate last year, the lowest since 2009.