By Yoon Ja-young
The government will spend an extra 3 trillion won over the next couple of months, while using state banks and other tools to pump in 7 trillion won to boost the economy amid growing deflationary risks.
“Though the real economic indices have been improving slowly, consumption isn’t picking up due to structural problems such as stagnant wages,” Strategy and Finance Minister Choi Kyung-hwan said at the economic ministers’ meeting, Friday. He pointed out that corporate investment is weak due to lack of effective demand.
“The government will frontload 3 trillion won more of its budget in the first half and expand investment by 7 trillion won to bolster the economy,” he said.
It means 58.6 percent of the total budget will be spent in the first six months.
According to the Korea Institute of Public Finance, the government can pull up the economic growth rate by an additional 0.23 percentage points by frontloading 58 percent of the budget.
The government also plans to apply a corporate investment promotion program where the Korea Development Bank and private companies set a fund to invest in new-growth industries.
This program is scheduled to invest 10 trillion won this year, but the government plans to increase it by 5 trillion won.
State-run enterprises will also make 1.4 trillion won in additional investment. Korea Electric Power Corp. will be investing 1 trillion won to upgrade power transmission and distribution systems, on the government’s determination that it has room for such investment thanks to falling global oil prices.
The Korea Hydro and Nuclear Power, K-water, and Korea Expressway Corp. will also increase investment in facilities.
The additional stimulus package comes amid growing concern over deflation, where low growth and low inflation become chronic.
Research institutes have been lowering their economic growth outlook for the Korean economy, citing sluggish exports and private consumption.
Nomura Securities lowered its estimate to 2.5 percent from 3 percent. The government, however, expects the economy to grow 3.8 percent this year.
“The economy isn’t likely to see a notable recovery. Problems will continue for businesses in difficult situations as their low profitability doesn’t improve.
Households are cutting spending due to huge debt and concern over life after retirement while income is stagnant,” said Lee Geun-tae, an economist at LG Economic Research Institute.
He said the government should accelerate structural reform to enhance productivity.