South Korea plans $29-billion virus stimulus

Third economic package announced after the Bank of Korea predicted the world's 12th-biggest economy will shrink at least 2% in the April-June quarter over the previous three months

by AFP
South Korea plans $29-billion virus stimulus
Pedestrians wearing face masks walk through an underground shopping area in central Seoul on June 2, 2020. South Korea's economic contraction will worsen in the current quarter, the central bank forecast as the coronavirus outbreak hits consumer demand and economic activity harder. Photo: Jung Yeon-je / AFP

The South Korean government on Wednesday proposed its biggest stimulus package yet as it seeks to prop up an economy dragged down by the coronavirus pandemic.

The virus has already thrust the world's 12th-largest economy into a 1.3% quarter-on-quarter contraction in the January-March period, the biggest drop in gross domestic product since the 2008 global financial crisis.  

The 35.3 trillion won ($29 billion) package is the third announced by the government of Moon Jae-in in response to the virus, after boosts of 11.7 and 12.2 trillion won in March and April.

It is highly likely to be passed by parliament, where Moon's Democratic party has an overall majority.

The objectives include the creation of 550,000 jobs, the finance ministry said, and providing "emergency funds" to business owners and small- to medium-size companies hit by the outbreak, with nearly 10 trillion won earmarked to enhance employment and social safety nets. 

More than two-thirds of the 35.3-trillion won plan will come from issuing state bonds, according to the finance ministry, while the remaining will be funded through government spending readjustments.

South Korea endured one of the worst early outbreaks of the coronavirus outside mainland China, and while it never imposed a compulsory lockdown, strict social distancing was widely observed from March until it started loosening restrictions last month.

But the Bank of Korea forecast last week that the economy will shrink 0.2% in 2020, a dramatic downgrade from its February forecast of 2.1% growth, and cut interest rates to a record low.

The International Monetary Fund (IMF) has estimated the world economy will contract 3% this year, saying it is expected to "experience its worst recession since the Great Depression" over the pandemic.

The IMF has predicted the South Korean economy will shrink 1.2% this year.

Private consumption decreased 6.5% in January-March from the previous quarter "as expenditures on goods and services both decreased", the BOK said.

But the country appears to have brought its epidemic under control thanks to an extensive "trace, test and treat" programme and life is beginning to return to normal.