Economist at UOB Group Ho Woei Chen, CFA, reviewed the recent decision by the South Korean government to ramp up fiscal spending during the next year.
Key Quotes
“South Korea has unveiled a record KRW 555.8 trillion (US$469.7 billion) budget for 2021 to speed up the economic turnaround and prepare for the future. This represents 8.5% increase from 2020’s original budget of KRW512.3 trillion but which was subsequently raised to KRW546.9 trillion after three successive rounds of stimulus packages.”
“As expected, spending priorities are on healthcare, welfare and employment which will receive KRW199.9 trillion or 36.0% of the budget spending in 2021, up from 35.2% in 2020. Of this, KRW30.6 trillion is earmarked for jobs creation.”
“Notably, KRW21.3 trillion of the budget will be used for the Korean “New Deal” package in 2021 and is estimated to create 360,000 jobs.”
“Overall, South Korea expects average government expenditure growth to outstrip revenue growth in 2020-2024 at 5.7% per annum vs. 3.5% for the latter. The fiscal outlook is likely to remain weak in the next few years with fiscal deficit projected at 5.6%-5.9% of GDP until 2024 while government debt will rise to 58.3% of GDP by 2024.”
“BOK has revised down its GDP forecast for 2020 to -1.3% from May’s -0.2% and expected a rebound to 2.8% growth in 2021. With stronger fiscal support, we expect a stronger GDP recovery to 3.5% growth in 2021 while our forecast for 2020 remains at -1.3%.”
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