Published : Feb. 4, 2016 - 17:44
The government’s 21 trillion won ($17.4 billion) fiscal stimulus for the first quarter of the year will be insufficient to offset the growing downside pressure on the economy, analysts said Thursday.
Finance Minister Yoo Il-ho speaks at a meeting with economy-related ministers in Seoul on Wednesday. (Yonhap)
Following a spate of disappointing economic data, the government unveiled Wednesday a new stimulus package which includes an extra 6 trillion won in public spending on top of the original 138 trillion won in fiscal spending earmarked for the first quarter. There will also be an additional 15.5 trillion won of policy loans to be extended to local businesses.
“The frontloading is expected to push up growth by 0.2 percentage point but will not be enough to offset the sagging exports and weakening domestic demand,” said Seo Dae-il, a KDB Daewoo Securities researcher.
One reason that the stimulus is not likely to have much impact is further deterioration of business conditions in export companies.
Asia’s fourth-largest economy is expected to continue grappling with plummeting exports this year with waning global demand and oil prices, according to Seo. He said that the execution of frontloading in the first half of the year may increase uncertainty of economic slowdown in the second half of the year. This could constrict corporate investment demand. The government’s plan to curb private sector debt is also expected to hamper the effectiveness of fiscal stimulus measures.
Absence of measures that could boost household income and support consumption of low-income consumers was one of the loopholes of the plan to boost domestic demand, the firms said.
“Korea’s economy will likely undershoot the government’s 2016 growth target of 3.1 percent and the risk of falling short of our 2.8 percent estimate is high,” he said.
His view echoed the lukewarm responses from other experts over the stimulus program.
“It seems to be difficult to change the current economic trends and (the plan) has limits to revitalize the economy as much as the government intends to,” Park Hyung-joong, a Daishin Securities researcher said.
Park pointed out that monetary policies like lowering interest rates and liquidity injections should be addressed to bring the economy back on track. “The suggested measures are more like a temporary expedient which will have short-term durability as it only involves pouring planned fiscal spending a few months ahead of its initial schedule,” Park said.
“If the government does not come up with more active measures, it will be hard for the economy to grow over 2.5 percent this year.”
By Park Han-na (
hnpark@heraldcorp.com)