SEOUL: South Korea's economy is projected to grow by only 1.8 percent this year, as the government prioritizes "stable management" in response to high levels of uncertainty. This figure is below both the Bank of Korea's forecast of 1.9 percent and international estimates ranging from 2 to 2.1 percent.
According to Yonhap News Agency, the revised outlook represents a 0.4 percentage-point decrease from the previous forecast of 2.2 percent made in July. The revision is attributed to a sluggish recovery in domestic demand and challenges in the export sector, particularly due to a downturn in the semiconductor industry and potential global protectionism.
The projections were made amid domestic political turmoil following President Yoon Suk Yeol's brief imposition of martial law on December 3. First Vice Finance Minister Kim Beom-seok noted that such uncertainties likely influenced the economic forecast.
Kim highlighted that this year would be marked by unprecedented uncertainties impacting growth, financial markets, and living conditions. Consequently, the government plans to focus on risk management rather than pursuing extensive policy initiatives.
Domestic demand is anticipated to reach its lowest point in the first quarter before gradually recovering. Credit card spending, especially in offline sectors like restaurants, has significantly declined since the December event, according to the ministry.
Despite expectations of easing inflation and interest rates, the export-driven economy faces risks from potential changes in global trade policies with the second Donald Trump administration set to take office later this month.
To tackle these challenges, the government intends to front-load 431.1 trillion won (approximately US$300.2 billion) of this year's fiscal budget in the first half. The spending will focus on supporting low-income groups and small businesses affected by reduced consumption and rising loan delinquencies.
The ministry plans to deploy public resources at an unprecedented scale and speed in the first half of the year. Additionally, to boost domestic spending, the government is considering a large-scale sales festival during the Lunar New Year holiday later this month.
Regarding supplementary measures, the ministry is reviewing options, including an additional budget, to maintain credibility among foreign investors concerned about recent political instability. Measures to attract foreign investment could include expanded tax incentives and cash subsidies.