Gloomy Outlook for Korea Jobs Seen Paving Way for Extra Budgetby
S. Korea to announce economic policy direction late this month
Lawmakers, economists call for more spending to support growth
South Korea’s restructuring of indebted companies has started to hit the nation’s job market as companies downsize and lay off workers, spurring lawmakers and economists to call for a supplementary budget to support growth.
While the nation’s jobless rate was unchanged in May, the reading in the province with a concentration of shipbuilders climbed by 1.2 percentage points, the biggest regional rise. The pace of job growth has slowed, especially in the manufacturing sector, and won’t improve without a recovery in exports, said Lee Ho Seung, director general for economic policy at the finance ministry.
Finance Minister Yoo Il Ho said last week that the government is seeking an active role for fiscal policy, although he didn’t say whether a supplementary budget would be announced. Still, pressure is growing, with a ruling Saenuri party lawmaker saying Tuesday that the government should consider an extra budget of “considerable size” to relieve strains in the job market from corporate restructuring.
“Exports remain sluggish and slowing job growth will weigh on sentiment, showing the need for a supplementary budget,” said Chang Jae Chul, a Seoul-based economist for Citigroup Inc. “We expect 2.4 percent growth for Korea this year, but there are downside risks to this if there is a fiscal cliff.”
Any stimulus plan would be released later this month when the government announces economic policies for the second half of 2016. South Korea last year introduced fiscal stimulus of more than 15 trillion won ($13 billion), including an extra budget, to alleviate the impact of an outbreak of a deadly respiratory disease and a drought.
Needs Parliament’s Approval
A supplementary budget needs approval from parliament, and can legally be considered if there are major changes in society or the economic situation such as a recession, mass unemployment or national catastrophes. It can be financed by issuing bonds or by using leftover money from last year’s budget.
Manufacturing employment rose by 50,000 in May from a year earlier, compared with last year when gains averaged about 150,000 a month. Unemployment in South Gyeongsang province, which includes the industrial cities of Ulsan and Geoje, rose to equal the national rate of 3.7 percent in May -- the first time the rate matched the national level since 2009.
The government has been attempting to support the economy through fiscal spending amid weak private consumption and exports. The finance ministry has said it will spend almost 60 percent of the 2016 budget in the first half of the year, and spending rose 4.5 percent in the first quarter from a year earlier, compared with the 2.8 percent increase in gross domestic product.
“While the government needs to prepare for an aging economy and pay attention to fiscal soundness in the longer term, more active fiscal spending in the short term seems to be the appropriate policy direction,” said Stephen Lee, a Seoul-based economist for Samsung Securities Co. “If there is none or only a small amount of fiscal boost, the economic growth rate is bound to slow.”