The South Korean government’s proposed supplementary budget worth 12.2 trillion won ($8.6 billion) is projected to stimulate growth in the country’s gross domestic product by 0.1 percentage point, officials said Friday.
The government passed the extra budget proposal at an extraordinary Cabinet meeting on Friday. Of the 12.2 trillion won, roughly 4 trillion won will be injected into shoring up key industries affected by trade tensions and advancing the artificial intelligence sector, while 3 trillion won will be allocated to disaster recovery and 4 trillion won will be put into boosting domestic demand.
The Finance Ministry, responsible for overseeing the additional budget, projected that the 12.2 trillion won injection could boost the local economy by 0.1 percentage point.
"The figures would have to be tested, but the supplementary budget is likely to lift (GDP) growth by 0.1 percentage point," said Kim Yoon-sang, second vice minister at the Finance Ministry, at a press briefing Thursday.
The Bank of Korea offered a similar outlook, projecting a boost to growth, but only a limited one due to the budget's relatively small size.
"The execution of a 12 trillion won supplementary budget could boost the economic growth rate by 0.1 percentage point," BOK Gov. Rhee Chang-yong said at a separate press briefing held Thursday shortly after the central bank's rate-setting decision.
At the briefing, Rhee warned that the central bank may have to reduce its estimate of the country's GDP growth rate for this year and further suggested Korea's economy may have contracted in the first three months of this year.
The Bank of Korea’s February forecast of 1.5 percent economic growth for this year — sharply downgraded from the 2.3 percent projected a year earlier — is facing further downward pressure as US tariff measures are expected to weigh heavily on Korea’s exports, a key driver of its GDP.
"It is not appropriate for me (as the central bank governor) to speak about how large the budget should be," Rhee said. "But I can say that it would be better for the budget to be limited to one-off spending to ensure it does not lead to a structural fiscal deficit."
The government is to submit the budget to the National Assembly for approval on Tuesday.
silverstar@heraldcorp.com
