Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Calls grow for aggressive fiscal spending to prop up faltering economy
A TV inside a store at a traditonal market in Seoul shows acting President Han Duck-soo delivering a parliamentary speech on an extra budget bill, Thursday. Yonhap
By Yi Whan-woo
Calls are growing for more aggressive fiscal spending to spur the faltering economy as Asia's fourth-largest economy contracted in the first three months of the year due to sluggish consumption and falling exports, economists said Thursday.
The Ministry of Economy and Finance has been criticized for its stimulus plan allocating a supplementary budget worth 12.2 trillion won ($8.53 billion), which many economists deemed insufficient in the middle of the nation's bleak growth outlook.
The amount is anticipated to increase the country’s GDP growth rate this year only by 0.1 percentage point, according to Second Vice Minister of Economy and Finance Kim Yoon-sang, who gave a briefing when the stimulus plan was unveiled on April 18.
Many experts say that the positive effect of the 12.2 trillion won was already offset as Korea’s GDP growth shrank faster than expected, while the stimulus plan awaits the National Assembly’s approval to take effect.
“The economic contraction makes it crystal clear that the finance ministry was wrong in estimating the size of the adequate extra budget to revitalize the economy,” Yoo Ho-lim, a professor of taxation at Kangnam University, said.
“The 12.2 trillion turned out to be unavailing,” the professor added, referring to the Bank of Korea’s (BOK) announcement that Korea’s GDP shrank 0.2 percent in the January to March period from three months earlier.
It marked the first quarter-on-quarter contraction since the second quarter of 2024. It adds to heightened pessimism over Korea’s 2025 growth, which various institutions in Korea and abroad initially forecast to grow in the range of the upper 1 percent but later revised down to the lower 1 percent.
Packaged processed foods are piled up at a supermarket in Seoul, Monday. Yonhap
“Despite a bleaker economic outlook, the government still seems to be far from being realistic, and hopefully, a 0.2-percent economic contraction serves as a wake-up call for the finance ministry to increase the extra budget,” Yoo said.
Jung Ho-chul of Citizens' Coalition for Economic Justice (CCEJ), a civic activist group, urged the government to “double or even triple the supplementary budget.”
“The government still appears to be adhering to belt-tightening policy although times have changed,” Jung said, referring to former President Yoon Suk Yeol’s policy to curb government expenditures in a bid to improve fiscal health.
The civic activist pointed out that political uncertainty in relation to Yoon’s removal from office aggravated sluggish domestic consumer spending, while U.S. President Donald Trump’s tariff policy is pressing Korean exporters harder in a tense global trade environment.
“Korea may possibly enter a recession if adequate stimulus measures are not taken in a timely manner, and in that regard, the government may need to address another additional supplementary budget other than 12.2 trillion won,” Jung said.
Shin Se-don, professor emeritus of economics at Sookmyung Women's University, said, "The government should focus heavily on boosting domestic demand if an additional supplementary budget is planned."
Of the 12.2 trillion won extra budget, 4.3 trillion won is allocated to lessen the burden on people's livelihoods. 3.2 trillion won is earmarked for disaster prevention and recovery efforts, and another 4.4 trillion won is to mitigate trade risks and support advanced industries.
Shin’s comment was in line with calls from Rep. Lim Kwang-hyun of the main opposition Democratic Party of Korea (DPK). The party holds a majority in the National Assembly and wants to hike the government’s proposed 12.2 trillion won budget up to 15 trillion won.
Lim said domestic demand’s contribution to GDP growth is “invisible” as households struggle with high costs of living and repayments.
Meanwhile, Acting President Han Duck-soo called for bipartisan support as he asked the National Assembly to quickly pass the extra budget bill.
“The domestic economic circumstance is not favorable,” he told the National Assembly on Thursday. “Timely spending of financial resources is more important than anything."