Gov't goes all out to spur domestic demand to achieve growth target

Apples are on a display at a traditional maket in Seoul, Friday. Yonhap

The government will introduce a set of measures this week to revamp weakened private spending to achieve a growth target of 2.2 percent this year, the Ministry of Economy and Finance said Sunday.

The ministry plans to establish a fund worth 300 billion won ($222.8 million) to encourage investment in rural areas.

The fund will be launched, Monday, in cooperation with the Korea Development Bank and the Ministry of the Interior and Safety-run fund operator, which is tasked with salvaging small towns hit by a demographic crisis.

On Thursday, the finance ministry will also unveil a plan aimed at easing regulations and simplifying steps for businesses nationwide to receive state support in a timely manner when needed.

Separately, the ministry plans to encourage builders to beef up infrastructure investment in rural areas.

The government’s moves come as domestic demand is faltering worse than expected, fueling concerns that it can offset the positive economic impact stemming from a recent recovery in exports.

A twin engine growth, exports increased for the fifth consecutive month in February, with outbound shipments advancing 4.8 percent year-on-year to $52.4 billion compared to inbound shipments that slid 13.1 percent year-on-year to $48.1 billion.

In particular, the trade balance with China, Korea’s top trading partner, swung back to black for the first in 17 months as demand for chips, cars, petrochemical products and other key items increased.

On the other hand, the business survey index (BSI), a measurement linked to domestic demand, continued to remain sluggish.

According to the Bank of Korea (BOK), the BSI for all industries was measured at 69 for the second straight month in February.

A reading below 100 means pessimists outnumber optimists.

The February figure is the lowest since September 2020, when it was at 64.

In its forecast for 2024 economic growth, the finance ministry projected that private spending will grow 1.8 percent while exports will grow 8.5 percent.

Such a growth goal for private spending assumes that inflation will continue to ease so that goods are offered at affordable prices, according to economic experts.

Consumer prices, however, rose 3.1 percent year-on-year in February, bouncing back above 3 percent again after marking a 2.8 percent increase in January, according to Statistics Korea.

“In that regard, I’d say the government will need to closely monitor domestic demand and take relevant measures to ensure it does not disrupt its economic recovery plan,” said Jung Ho-chul of Citizens’ Coalition for Economic Justice, a civic activist group.