The South Korean government plans to allocate 75 percent of this year’s budget within the first half (January-June) to stimulate domestic demand and revitalize the economy. It acknowledges that the recent export recovery, spurred by high-interest rates and inflation, must effectively benefit the general public, self-employed individuals, and small businesses. Additionally, the government is set to deregulate several greenbelt zones (areas with development restrictions) in non-capital regions, aiming to stimulate the faltering real estate market.
On Jan. 4, the Ministry of Economy and Finance (MOEF) announced the 2024 Economic Policy Direction, themed ‘Vibrant People’s Economy,’ during a discussion for public welfare with President Yoon Suk-yul. “Prices and employment rates are expected to improve this year, but we need to ensure that these improvements reach people’s everyday lives. While macro indicators like exports are strong, the lack of felt impact indicates a need for more careful policy implementation,” President Yoon said.
This year, the government has committed to stabilizing prices, easing the burden on small businesses, and revitalizing domestic demand. To begin with, measures are being taken to manage rising prices. Korea’s consumer price inflation rate, which peaked at 6.3 percent in July 2022 and declined to 2.3 percent by July last year, has since risen and remained around 3 percent for five consecutive months since August.
The MOEF plans to allocate $8.2 billion (10.8 trillion won), up by 1.8 trillion won from last year, to a budget designed to counter inflation. This includes providing discounts on agricultural products and distributing energy vouchers. The ministry said, “All ministries will collaborate to achieve a 2 percent inflation rate in the first half of the year.”
Choi Sang-mok, Deputy Prime Minister and Minister of Economy and Finance said, “Domestic demand is expected to lag behind exports in the first half of this year, leading to a less favorable perceived economy. Interest rates are unlikely to decrease until the second half of the year, and inflation is anticipated to fluctuate around 3 percent in the first half, presenting challenges.”
Despite recent robust export growth, concerns about this year’s economic outlook have led the government to lower its growth forecast. It now expects the country to grow by 2.2 percent this year, down 0.2 percentage points from last year’s forecast of 2.4 percent. Inflation is projected at 2.6 percent, and the current account surplus is expected to be $50 billion (about 65 trillion won).
