Economists call for more support as S Korea cases rise
Edward White and Song Jung-a report from Seoul
South Korea’s record stimulus aimed at softening the blow from the coronavirus might not be sufficient, economists have warned.
Seoul on Wednesday unveiled a supplementary budget of Won11.7tn ($9.8bn) spread across support for small businesses and local governments, and measures targeted at boosting consumption as well as medical infrastructure for disease control.
The spending adds to an already-record high budget planned before Covid-19 started to cause widespread disruption to South Korea’s critical exporters and dent consumer demand.
The country on Thursday reported 438 new cases on Wednesday with the total number of infections rising to 5,766 and total deaths at 35, according to health officials.
Park Chong-hoon, head of research at Standard Chartered in Seoul, said further spending might soon be needed to make up for falling tax revenues as corporate earnings are hit.
“The financial cost for issuing Treasuries to fund the extra budget is low given the ultra-low interest rates globally,” he said. “The government needs to increase spending to support struggling SMEs, which will find it difficult to weather the current crisis.”
Christian de Guzman, an analyst at Moody’s in Singapore, noted Korea’s latest efforts did not represent a material deterioration in the government’s fiscal position.
“Uncertainties around the severity and duration of the coronavirus outbreak, both domestically and among Korea’s largest trading partners, pose further risks to economic growth and could prompt additional fiscal stimulus,” he said.
The Bank of Korea last week held interest rates at a record low of 1.25 per cent. But many analysts now expect to see pre-emptive easing from the country’s central bank, given the worsening economic outlook and following a cut this week by the US Federal Reserve.
Seok-gil Park, a JP Morgan economist, said: “While there is no regular rate decision meeting in March, we now expect the BoK will cut 25bp in March possibly through an inter-meeting action.
He added that another 25bp was likely during the third quarter. “Yet it is a close call depending on further developments and recovery path from the impact of Covid-19 on global and domestic demand,” Mr Park said.