S.Korea’s extra budget approved; IBs lift economic forecast

South Korea’s National Assembly, controlled by the ruling Democratic Party, on Friday passed the country’s new extra budget worth 31.8 trillion won ($23.3 billion), about two weeks after the government unveiled the plan.  

In mid-June, the Korean administration of President Lee Jae-myung, who was sworn in after winning a snap presidential election on June 3, proposed a 30.5 trillion won package, including 20.2 trillion won in new spending to boost economic growth and 10.3 trillion won to offset an anticipated tax revenue shortfall.

The approved package is 1.3 trillion won more than originally proposed after lawmakers boosted funding for a universal cash handout program to 12.2 trillion won from the initial proposal of 10.3 trillion won.

The cash handout scheme, which will dole out vouchers to nearly every citizen in Korea, was one of President Lee’s key campaign pledges.

The final package passed without bipartisan backing, as lawmakers of the opposite People Power Party boycotted the vote in protest over the voucher program hike and special funding for the presidential office.

The fresh extra spending, which is the second of its kind following a 13.8 trillion won plan approved in May, is, however, welcomed by the market in general.

GLOBAL IBs REVISE UPWARD KOREA’S GROWTH FORECAST


Multinational investment banks have recently revised upward their 2025 growth forecast for Asia’s fourth-largest economy, citing optimism over the new government’s active expansionary fiscal stance, including the additional supplementary budget.

The average forecast from eight major international banks stood at 0.9% at end-June, up 0.1 percentage point from a month earlier, according to the Korea Center for International Finance on Friday.

Their average forecast had been cut from 1.6% in January and February to 1.4% in March, then 0.8% in April and May.

Bank of America raised its forecast to 1.0% from the previous 0.8%, while Barclays lifted its outlook to 1.1% from 1.0%, and UBS revised its estimate to 1.2% from 1.0%.

In May, Goldman Sachs increased its forecast to 1.1% from 0.7%.

JP Morgan, Citi, HSBC and Nomura have left theirs unchanged at 0.5%, 0.6%, 0.7% and 1.0%, respectively, since April.

The upward revisions reflect the banks’ expectations that the government stimulus will support growth, analysts said.

Citi estimated in a recent report that the supplementary budget could accelerate Korea’s growth by 0.38 to 0.77 percentage point per quarter.

“Considering the government’s extra spending and the latest economic data, the Korean economy seems to be bottoming out,” said Yoon Jee-ho, senior economist at BNP Paribas South Korea. “This would allow the Bank of Korea to revise its growth forecast higher next month.”

In May, the Bank of Korea cut its 2025 growth forecast for the country’s economy to 0.8% from the previous 1.5%, citing persistent uncertainty stemming from US tariffs and Korean politics, as it lowered the policy rate for a fourth time in its current easing cycle.

The central bank has also said that supplementary budgets will play a key role in reviving the country’s economy.

Write to Hyung-Chang Choi and Jin-gyu Kang at calling@hankyung.com

Sookyung Seo edited this article.