Korea adds 8.5 trillion won to fiscal spending

The Finance Ministry said Thursday that it has revised its projection for the nation’s economic growth for this year down to 3.3 percent, from its earlier forecast of 3.7 percent.

In its unveiling of the second-half economic policy direction, the Finance Ministry cited external factors including the eurozone fiscal crisis for the revision.

Earlier, the International Monetary Fund and the Organization for Economic Development and Cooperation also lowered their respective forecasts for Korea’s GDP growth to 3.3 percent from earlier estimates of 3.5 percent.

“In the wake of the eurozone debt crisis, chances are high that it will take longer-than-expected for the nation to see a robust economic recovery,” the ministry said in a statement.

But public officials downplayed arguments that growth below 3.5 percent could suggest policy failure, stressing the global conditions.

“We are projected to see the third-highest growth this year among OECD members, following Chile and Mexico,” a Finance Ministry director general told a news briefing.

Citing the revised predictions of the OECD and IMF, he said the government has decided to share the view of the global organizations.

“Major foreign research institutes say the eurozone crisis will continue to affect the global economy in the latter half of 2012 and the world’s economy could see a gradual recovery from next year,” he said.

In a bid to effectively cope with unfavorable external factors, the ministry said it has decided to allocate 8.5 trillion won ($7.4 billion) in additional spending as fiscal stimulus.

The government plans to increase fiscal spending by 4.5 trillion won through a state budget while public funds and corporations will raise another 4 trillion won for spending.

The additional spending should pull up GDP growth by 0.25 percentage point per annum by promoting investment in a variety of industries, officials said.

Following the ministry’s statement, according to research analysts, the Bank of Korea may choose to follow suit.

“The central bank, which revised down its forecast from an initial 3.7 percent growth to 3.5 percent in April, is likely to lower its estimate again in the coming weeks,” an analyst said.

Meanwhile, the ministry said 2012 consumer prices growth will remain at 2.8 percent, lower than the earlier projection of 3.2 percent.

It also said the number of employees will increase by about 400,000 on a year-on-year basis, higher than the earlier estimate of by 280,000.

In 2011, the nation posted a 3.6 percent economic growth and an inflation rate of 4 percent.

While Korea saw the current account surplus reach $26.5 billion in 2011, the figures for 2012 and 2013 are projected to stay at $18 billion and $15 billion, respectively.

Ministry officials said the government will maintain its first-half policies to revitalize the economy and stabilize ordinary people’s lives.

Last month, the OECD said that the Korean economy will pick up next year to achieve 4 percent growth.

Following a slowdown in late 2011, Korea’s economic growth is projected to pick up gradually, led by a rebound in exports as world trade gains momentum, the Paris-based organization predicted in a report.

The report added that trade will also be stimulated by the front-loaded implementation of the Korea-U.S. Free Trade Agreement beginning in 2012.

By Kim Yon-se (kys@heraldcorp.com)