SEOUL- South Korea’s government on Tuesday downgraded its economic growth and inflation forecasts for this year, and pledged to step up efforts to boost exports and investments while continuing to focus on stabilizing inflation.
In its biannual economic policy plan, the finance ministry placed more emphasis on stimulating growth as Asia’s fourth largest economy struggled to pick up momentum amid a slowdown in global demand.
“While paying attention to price stabilization, the government will consider macroeconomic and financial market conditions in a flexible policy mix,” the ministry said, adding that it will pursue steps to boost exports and investments.
South Korea’s consumer inflation more than halved over the year from a near 24-year high of 6.3 percent in July 2022, offering more headroom for a tilt in the government’s policy stance toward boosting growth from stabilizing inflation, which was the primary focus in the first half.
However, the government said it doesn’t plan on any big fiscal stimulus measures as price stabilization was still a priority.
“For now, there is no plan for any extraordinary measures, such as more fiscal input, to propel an economic rebound, as we will continue to put considerable weight on price stabilization at least through the second half,” Vice Finance Minister Bang Ki-sun said.
“Nonetheless, exports and investment are starting to recover a little, so we are providing financial support and easing regulations by just enough to keep the momentum alive,” Bang told reporters.
In its economic forecasts released along with the policy objectives, the finance ministry revised down this year’s annual economic growth to 1.4 percent from 1.6 percent seen in December and consumer inflation to 3.3 percent from 3.5 percent.
They compare with projections of 1.4 percent and 3.5 percent, respectively, by the Bank of Korea (BOK), which has been on hold since the last interest rate increase in January. The BOK has adopted a cautious stance against an early shift in its restrictive monetary policy as inflation is still above its medium-term target of 2 percent.
To further stabilize prices, the ministry said it would maintain tax cuts on energy and food items that are currently in place, while refraining from raising public utility costs.
South Korea’s economy posted slim growth in the first quarter and has struggled to motor on due to weak external demand, but it is also seeing some signs exports are slowly turning a corner.
The ministry said the government will make every effort to boost exports and investment as drivers of economic growth in the second half and prepare steps to keep domestic consumer spending on a recovery path.
Specific plans range from administrative and financial support for exporters to tax breaks on investment in certain industries such as future mobility and healthcare.
The government would also introduce new tax benefits for re-shoring, or domestic investment to bring back production, in industries of strategic importance, namely semiconductor, the ministry said.
