2nd-quarter growth likely to dip below 1%

By Yoon Ja-young

The government said Thursday it will earmark 10 trillion won for a supplementary budget and spend an additional 5 trillion won from state funds in the second half of the year to boost the economy marred by the Middle East Respiratory Syndrome (MERS) epidemic.

The outlook for growth this year was drastically cut from 3.8 percent to 3.1 percent with second quarter growth likely coming in at less than 1 percent.

“We expected the economy to grow 1 percent in the second quarter, but this will be difficult now due to MERS,” Strategy and Finance Minister Choi Kyung-hwan said.

The finance ministry said it had no

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ther option but to cut its growth forecast as MERS had damaged consumption and the services sector.

The outbreak is estimated to have reduced economic growth by between 0.2 and 0.3 percentage points.

It added that even if the MERS outbreak stabilizes, weak consumer sentiment will continue for the time being, affecting the whole economy.

“If we don’t take measures such as the supplementary budget, the economic growth rate for this year is expected to fall to below 3 percent,” said Lee Chan-woo, head of the economic policy bureau at the ministry.

Government officials expect the economy to regain momentum in the latter half of the year, boosted by the supplementary budget and an improving global economy.

The exact amount of additional funds will be determined next month after consultation with the governing party; the supplementary budget will likely be spent mostly on boosting consumption, including creating jobs.

Officials said most of the supplementary budget will be raised through state bonds, which is expected to further worsen fiscal soundness.

In addition, the four major sectors of labor, finance, public and education will undergo reform.

This will include creating jobs for young people and narrowing the gap between regular and non-regular workers, deregulation in the financial sector, and restructuring of the public sector.

Foreign exchange regulations will be relaxed to allow institutional and individual investors to invest more easily in overseas securities.

The government plans to announce concrete measures to manage household debt that has increased to a record 1.1 quadrillion won. It has downplayed the debt problem as it was more focused on boosting the real estate market and the overall economy.

Economists have pointed out that household debt will hamper the economy with the United States expected to raise its key rate in the latter half of the year.