South Korea cuts growth outlook, vows to maintain stimulus for virus-hit economy

MACROECONOMICS - SEOUL. South Korea cut its 2021 growth forecast and vowed to continue to support workers and exporters as a resurgence of the coronavirus has delayed its recovery and forced the government to keep its fiscal taps wide open.

Gross domestic product is expected to grow 3.2% in 2021, the finance ministry said on Thursday, down from a previous estimate for 3.6% growth, as the country faces a third wave of coronavirus infections.

Booming exports will help the economy recover from an expected slump of 1.1% this year, which would be the biggest full-year fall since 1998.

"To achieve our first priority -- fast and strong recovery and a return to a vibrant economy -- we will keep macro policies expansionary as we did this year," Vice Finance Minister Kim Yong-beom said in a news conference.

"The uncertainty over the coronavirus spread will restrict our path to recovery in service sectors where business models are based around human contact, and across consumption and employment."

The government plans to spend 63% of its record 558 trillion won ($510.04 billion) annual fiscal budget in the first half of 2021 to shore up growth and boost tax benefits for credit card spending that exceeds a certain amount, the ministry said.

A 110 trillion won investment project programme will direct government spending to public housing, railroads and harbours and will aim to keep businesses afloat and secure jobs. Over 255 trillion won worth of financing meanwhile will be made available for exporters through cheap loans, the ministry said.

Exports will likely jump 8.6% in 2021 thanks to growing global demand for memory chips, after a 6.2% slump this year, it said.

The latest outlook and spending plans are based on the assumption that South Korea can avoid a full-scale lockdown, which health authorities on Wednesday said they are considering amid a record surge in coronavirus cases.

The ministry also said it would monitor how local brokerages and insurance companies get dollar financing to avoid any sharp changes in capital flows into and out of the economy. ($1 = 1,094.0300 won)