Government to pour more than W15tr to secure 3% growth

The Finance Ministry on Thursday announced a fiscal stimulus of 15 trillion won ($13.6 billion) through a supplementary budget and state funds this year to boost the economy hit by the Middle East respiratory syndrome outbreak.

In addition, the government revised its 2015 GDP growth outlook down to 3.1 percent from its earlier forecast of 3.8 percent, citing sagging exports and weaker-than-expected recovery in domestic demand.

At a news briefing, Deputy Prime Minister and Finance Minister Choi Kyung-hwan clarified that the extra budget was inevitable due to the MERS outbreak, which dealt a serious blow to private consumption and some industries from late May to June.

“(The government) will push for reinforcement of the fiscal stimulus by 15 trillion won or more,” Choi said. “All available (financial) resources including the planned extra budget and a variety of state funds will be mobilized,” he said.

“Though the ministry had projected a 1 percent growth in the second quarter, it is even hard to see a 1 percent growth in the wake of MERS.”

Policymakers plan to use the supplementary budget for taking countermeasures against disasters, like the MERS spread and drought, as well as funds to boost exports and youth job creation.

“(The government) will carry out full-fledged efforts to ensure that economic growth stays above 3 percent this year through it (extra budget setting),” he said.

According to the Finance Ministry, the detailed scale of the extra budget, which is scheduled to be proposed to the National Assembly next month, will be fixed via consultations with the ruling Saenuri Party.

The total fiscal expansion could surpass 15 trillion won, party and ministry officials said.

Before submission to the Assembly, the Cabinet is scheduled to approve the extra budget bill by early July. When it passes through the parliamentary review, this will mark the 11th supplementary budget since 2000.

The ministry also unveiled its policy direction for the second half of this year.

Its decision to lower the GDP growth outlook by 0.7 percentage point to 3.1 percent reflected the coming fiscal expansion, analysts said. This indicates that policymakers predict the growth would stay below 3 percent unless there is a fiscal policy involving the extra budget, they said.

The ministry forecast that domestic demand will contribute more to growth than the export sector.

Despite the MERS outbreak, private consumption and facilities investment are projected to improve on the back of low oil prices, low interest rates and the coming fiscal remedy, it expected.

The ministry picked the coming rate hike in the United States, the Greek default crisis and the protracted impact of MERS as challenges ahead.

It predicted that private consumption would increase by 2.1 percent in 2015 on-year. Its growth outlook for the corporate facilities investment is set at 5.6 percent thanks to revitalization of the property market and increasing investments in both the R&D and software sector.

As for lackluster exports, the ministry plans to expand its support by about 14 trillion won in coordination with the Export-Import Bank of Korea and the Korea Trade Insurance Corp.

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