SEOUL: On Thursday, South Korea's parliament sanctioned an additional government budget of 13.8 trillion won ($9.7 billion) to support an economy struggling with low domestic demand and the possible effects of U.S. tariffs. On Thursday, leaders from the Democratic Party and the People Power Party reached an agreement on the supplementary budget, which exceeded the government's suggested amount of 12.2 trillion won. It encompassed 200 billion won to aid discounts on fresh fruits and areas affected by wildfires, 400 billion won for local vouchers, and 800 billion won for building infrastructure.
Data released last week indicated that Asia's fourth-largest economy unexpectedly shrank in the first quarter, with exports and consumption ceasing growth amid concerns about the effects of Washington's stringent tariffs, heightening anticipation of further interest rate reductions by the Bank of Korea. Investment in construction was the largest setback, decreasing by 3.2 per cent during the quarter. When the government suggested a reduced supplementary budget of 12.2 trillion won earlier this month, it stated its position was adaptable due to the significance of timing, while also acknowledging the strained conditions in the bond market.
The left-leaning Democratic Party, currently in the majority in parliament, advocated for a larger supplementary budget reaching up to 35 trillion won and cash-like payments to stimulate domestic demand. Economists indicate that there could be an additional government budget this year, contingent on the results of the nation's snap presidential election on June 3. Last month, South Korea's central bank indicated that the economic growth prediction of 1.5 per cent made in February for this year is expected to be revised downward during its upcoming policy meeting in May. The International Monetary Fund has recently reduced its prediction for South Korea's economic growth in 2025 to 1 per cent, down from 2 per cent.
($1 = 1,426.4300 won)
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