Second supplementary budget expected to exceed W20tr, with focus on AI, industrial upgrades
President Lee Jae-myung on Monday ordered swift action to roll out fiscal stimulus, aiming to revive economic momentum and fulfill his pledge to raise the country’s potential growth rate to 3 percent.
“The president instructed officials to swiftly draft a supplementary budget to boost consumption and support economic recovery, urging prioritization of aid for vulnerable groups and small businesses,” presidential spokesperson Kang Yu-jung said after Lee held a meeting of his emergency economic task force in Yongsan, Seoul.
With broad agreement on the need to strengthen the fiscal role in economic recovery, officials reviewed projects aimed at offsetting sluggish construction, investment and consumption, she said.
Though the size of the second supplementary budget was expected to be unveiled at the meeting, the government deferred the announcement, saying details remain under discussion.
Lee’s emergency task force, established via executive order on his first day in office, on Wednesday last week, held its second meeting Monday, bringing together economic aides, key ministers from the economy, industry and infrastructure ministries and officials from the Financial Services Commission.
To achieve the administration’s target of 3 percent potential gross domestic product growth, above the Organization for Economic Cooperation and Development’s 2.02 percent forecast for 2025 and the Bank of Korea’s 2 percent range for 2024-2026, the government is expected to rely on two main pillars: a second supplementary budget and major investments in emerging industries such as artificial intelligence, paired with structural reforms to enhance industrial competitiveness.
The ruling Democratic Party of Korea signaled that the additional budget will total between 20 trillion and 21 trillion won, following the 13.8 trillion won supplementary budget passed in May to support disaster recovery and bolster industries affected by US tariff tensions.
“Amid an unprecedented domestic demand slump, small business owners and the self-employed are on the brink of collapse,” said Democratic Party spokesperson Rep. Jo Seoung-lae.
“We urge the opposition to actively cooperate in the prompt passage of the supplementary budget to protect the people’s livelihoods.”
Investor sentiment appears to be shifting. Global banks are revising their growth outlooks for Korea upward from previously pessimistic projections.
Barclays recently raised its 2025 GDP forecast from 0.9 percent to 1 percent, citing the likelihood of expansionary fiscal policy regardless of political leadership.
Goldman Sachs increased its projection from 0.7 percent to 1.1 percent, estimating that a second supplementary budget equal to 1 percent of GDP could lift this year’s growth by 0.3 percentage point.
Citigroup economist Kim Jin-wook expects the upcoming stimulus package, estimated to be between 20 trillion and 35 trillion won, to boost total Korean Treasury Bond issuance for 2025 to between 227.1 trillion and 242.1 trillion won, significantly above the 2020–2024 average of 169.5 trillion won.
“Given the limited room for excess tax revenue and public funds, the second extra budget will likely be financed mostly through additional net treasury bond issuance,” Kim said.
Less than a week into his term, the newly inaugurated president faces the twin challenges of easing cost-of-living pressures and stimulating an economy mired in weak domestic demand.
“The people are suffering greatly because of rising prices,” Lee said during the meeting. “I’ve heard prices have gone up significantly. Is it true that a single packet of ramyeon now costs 2,000 won ($1.50)?”
While headline inflation fell to 1.9 percent in May, its lowest in five months, thanks to declining global oil prices, food costs remain elevated.
Prices for processed foods, including staples such as bread, chocolate, ramyeon, coffee and frozen food, jumped 4.1 percent from a month earlier, according to Statistics Korea.
Vice Finance Minister Kim Beom-seok warned that prices for eggs and chicken could spike “if we don’t respond properly" to an outbreak of highly pathogenic bird flu in Brazil, a key exporter of boneless chicken to Korea.
Analysts say food companies held off on price hikes earlier this year in cooperation with the previous government, but began raising prices en masse during the political vacuum triggered by former President Yoon Suk Yeol’s impeachment.
hnpark@heraldcorp.com
