SEOUL, South Korea – South Korea’s government lowered growth outlook for Asia’s fourth-largest economy and planned a supplementary budget for a second year in a row as the global economy faces heightened uncertainty.
The Finance Ministry said Tuesday that the economy will likely expand 2.8 per cent this year, down from its December prediction of 3.1 per cent. That would mark a slight improvement from last year but slower growth than 2014.
Jobs would be a primary goal as the government plans a 10 trillion won ($8.5 billion) supplementary budget during the second half of this year. The additional budget, pending parliamentary approval, would be used to support big projects that create jobs. In addition to the supplementary budget, the government would prepare a stimulus package that would total more 20 trillion won, it said.
Regarding lowering its growth forecast, the government cited a deterioration in global conditions for exports, South Korea’s key growth engine. The International Monetary Fund cut in April its outlook for the world economy and trade.
The direct impact from the result of Britain’s vote to leave the European Union is expected to be limited, the ministry said. But there are concerns about negative repercussions from the increased uncertainty in the global economy and financial markets, it said.
Global financial markets were rattled by Britain’s vote to leave the union. South Korean stocks and currency also fell sharply along with other emerging market stocks and currencies. The main stock index in Seoul recovered this week and the government said it will monitor any fallout from Britain’s vote.
South Korea also faces other economic headwinds at home. The government expects that companies will sharply lower their capital expenditures as sluggish exports continue. Corporate restructuring at cash-strapped shipbuilding and other industries could hurt job markets and corporate spending, it said.
The government said consumption may be dampened by an anti-corruption law that is set to take effect in the fall. The law to fight corruption bans government employees, school teachers and journalists from taking expensive gifts, which some worry will dent sales of agricultural products and other popular gifts.
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