S. Korea lowers growth estimate, set to spend more to revive economy

Jul 19, 2018, 09:07 am

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Finance Minister Kim Dong-yeon speaks during an economy-related ministers' meeting held at the Government Complex-Seoul on Wednesday./ Photographed by Song Ui-joo

By AsiaToday reporter Cho Sang-eun

South Korea's government lowered its growth estimate for the gross domestic product (GDP) for this year to 2.9 percent from its earlier projected 3 percent while cutting its job creation target to 180,000 from its earlier estimated 320,000. It plans to increase spending, expand the beneficiaries of the earned income tax credit (EITC) scheme, and promote innovative growth speedily in order to restore the economy.

The government held an economy-related ministers' meeting at the Government Complex-Seoul and announced the country's second-half economy policy on Wednesday.

The government's downgrade of its growth forecast and job creation target was expected to some extent with the Korean economy facing difficulties at home and abroad, such as low domestic demand, declining exports, sluggish facility investment, and the escalating US-China trade war.

The downgrade coincided with the Bank of Korea's latest growth estimates and job creation target for this year and the next in its report announced on July 12.

The problem is that the economy is unlikely to recover soon.

"The economic situations may worsen further," said Minister of Strategy and Finance Kim Dong-yeon. "Economic growth may slow down, and sluggish job creation and worsening income inequality may not improve sharply in the short term," he added.

As a step to boost the economy, the government will additionally spend 4 trillion won (US$3.55 billion) in the second half of the year through state-run funds and firms.

The government also plans to expand its budge spending to more than 7 percent from its earlier projected 5.6 percent for next year.

The government plans to promote domestic consumer spending through tax cuts. Consumption tax on new car purchase will be cut temporarily from the current 5 percent to 3.5 percent by the end of this year.

The government also prepared high-intensity job creation measures to restore the job market.

Some 3.34 million low-income families will receive 3.8 trillion won as part of the EITC scheme next year, up from this year's 1.66 million households and 1.2 trillion won.

Moreover, the government plans to continue its income-led growth initiative by improving the pay gap between workers.

It plans to subsidize the elderly that belong to the bottom 20 percent in the income bracket to receive 300,000 won starting next year, and raise the basic pension payment to 250,000 won from the current 210,000 won starting in September this year.

To ease the burden on small business owners, the government plans to provide financial support worth of 3 trillion won.

The government also decided to accelerate the country's innovative growth by expanding social infrastructure investment and improving core regulations to improve the quality of life in the fields of housing, transportation, safety and environment.

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