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South Korea Unveils Fiscal Package to Support Growth: Economy

Of the stimulus, 3 trillion won will be allocated for job creation and training services, while an equal amount will go toward supporting municipal governments. Photographer: SeongJoon Cho/Bloomberg
Of the stimulus, 3 trillion won will be allocated for job creation and training services, while an equal amount will go toward supporting municipal governments. Photographer: SeongJoon Cho/Bloomberg

April 16 (Bloomberg) -- South Korea unveiled a 17.3 trillion won ($15.4 billion) supplementary budget to support exporters pressured by a weaker Japanese currency and revive an economy that grew last year at the slowest pace since 2009.

The package will boost growth by 0.3 percentage points and create 40,000 jobs, the Finance Ministry said in a statement in Sejong. The net increase is 5.3 trillion won after covering expected revenue shortfalls, the government said. Another 2 trillion won will be available for support measures from outside the budget, it said.

The government plan may boost consumption and confidence as China’s economy shows signs of weakness and North Korea’s Kim Jong Un ratchets up threats against the U.S. and the South. A stronger won, which has risen more than 21 percent against the yen in the past six months, has hindered export-reliant companies such as Hyundai Motor Co. and Samsung Electronics Co. by making their products more expensive overseas.

“The extra budget will lift up the recovery in the second half of this year, which is needed as sentiment has been weak,” said Jun Min Kyoo, a Seoul-based economist at Korea Investment & Securities Co. “The focus on job growth and exporters will boost private consumption.”

President Park Geun Hye’s government announced plans for a stimulus package on the same day last month it lowered its 2013 growth forecast to 2.3 percent from 3 percent. The government moved today after the Bank of Korea last week resisted pressure to cut the benchmark interest rate.

Create Jobs

Of the money, 3 trillion won will be used to help create jobs, stabilize consumer prices and finance efforts to revitalize the housing market, the ministry said. Another 1.3 trillion won will support small- and medium-sized exporters.

“With the extra budget, we will be able to see growth at the high end of the 2 percent range this year,” Finance Minster Hyun Oh Seok said at a briefing last week.

The Kospi stock index rose 0.1 percent as of 1:42 p.m. today.

Goldman Sachs Group Inc. today cut its 2013 GDP growth forecast to 2.9 percent from 3.1 percent on weaker-than-expected first quarter activity. Australia & New Zealand Banking Group Ltd. said today it was raising its estimate to 2.6 percent from 2.4 percent.

“The government is trying to kick-start domestic activity,” said Ronald Man, a Hong Kong-based economist at HSBC Holdings Plc., highlighting money earmarked for job creation. “We expect that growth will rebound this year,” he said, adding that the economy’s expansion may be more than 3 percent.

Quarterly Growth

Asia’s fourth-largest economy posted quarterly growth of less than 1 percent for seven consecutive periods. It grew 2 percent last year, the slowest rate since 2009.

The Bank of Korea cited the recent depreciation of the yen when it cut its growth estimate for the year to 2.6 percent from 2.8 percent. Earlier this month, Japan’s central bank embarked on unprecedented monetary easing in a bid to end almost 15 years of deflation.

“Korean and Taiwanese producers are the front line facing newly competitive Japanese producers,” Timothy Condon, head of Asian research at ING Goep NV in Singapore, said before the release. He said that’s why the won and Taiwan dollar have “depreciated more than other Asian currencies this year.”

Of the package, 15.8 trillion won will be financed by issuing new bonds and adjusting a debt buyback program, the ministry said.

National Debt

National debt will increase to 480.5 trillion won, or 36.2 percent of GDP, after the extra budget, up from 34.8 percent in 2012, the ministry estimates.

Elsewhere in Asia, the Reserve Bank of Australia said the inflation outlook gives it room to reduce borrowing costs to a record even as earlier rate cuts boost demand. Sri Lanka kept interest rates unchanged for a fourth month today.

Euro-area inflation probably accelerated in March from a month earlier, according to economists surveyed by Bloomberg News. German investor confidence for April may have fallen, according to another survey. The U.K is due to report March inflation while Italy will release February trade data.

U.S. industrial production probably rose in March while core consumer prices were unchanged from a month earlier, two separate Bloomberg surveys showed. Data may show builders in March began work on the second-highest number of U.S. homes in almost five years.

To contact the reporter on this story: Cynthia Kim in Seoul at ckim170@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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