SEJONG, South Korea- South Korea cut on Thursday its estimate for 2020 economic growth first set in early July, and pledged to make the most of an easing in external risks while spurring domestic consumer and corporate spending.
The finance ministry said in its biannual policy statement that it aims to lift economic growth to 2.4 percent next year from an estimated 2.0 percent rise this year. In July, it had forecast 2.6 percent growth for 2020.
This year’s growth would be the worst in a decade and fall far short of the ministry’s goal of at least 2.4 percent, which it has blamed on a plunge in global prices of computer chips and fallout from the US-China trade war.
“Whereas we had to focus on defending the downward pressure in the second half (of this year), the priority next year will be lifting the recovery momentum,” Lee Eog-won, head of the ministry’s economic policy bureau, said in embargoed remarks at a media briefing.
He noted that global research agencies had forecast that prices of computer memory chips, the country’s top export item, would pick up next year and to early signs of easing in trade tensions between the United States and China.
The government’s growth target for next year is higher than market expectations and just above the central bank’s 2.3 percent forecast, also downgraded recently.
The government has won parliamentary approval to boost fiscal spending by 9.1 percent next year to take the fiscal deficit to 3.5 percent of annual gross domestic product, the biggest in a decade, from this year’s estimated 1.9 percent.
The finance ministry said in the policy statement it would allocate a record 62 percent of the total budgeted spending to the first half of 2020 to boost Asia’s fourth-largest economy as much as possible in its early stage of recovery.
It also plans to set up a 4.5 trillion won ($3.82 billion) financing program intended to support private sector-led facilities investment at home, whose slump was one of the key constraints on growth this year.
In addition, the ministry said it would draw up measures to grant tax cuts to buyers of new passenger cars to replace those made 10 years or more ago, and to buyers of hydrogen cars as part of measures aimed at boosting domestic consumption.
Analysts expect the central bank to further cut the benchmark rate to a record low of 1.0 percent next year from 1.25 percent now after it slashed rates by 50 basis points in two steps this year. The government has no say in interest rate policy. – Reuters