15 hours ago
Lee signals major stimulus to revive growth, fight inflation
Second supplementary budget expected to exceed W20tr, with focus on AI, industrial upgrades
Korean President Lee Jae-myung ordered immediate measures to curb rising food prices on Monday, signaling his administration's intent to roll out fiscal stimulus to revive growth and fulfill his campaign pledge of raising the country's potential GDP growth to 3 percent.
'The people are suffering greatly because of rising prices,' Lee said while presiding over a meeting of his emergency economic task force in Yongsan, Seoul. 'I've heard prices have gone up significantly. Is it true that a single packet of ramyeon now costs 2,000 won ($1.50)?'
Less than a week into his term, the newly inaugurated president faces the twin challenges of easing cost-of-living pressures and stimulating an economy mired in weak domestic demand.
While headline inflation fell to 1.9 percent in May, its lowest in five months, thanks to declining global oil prices, food costs remain elevated.
Prices for processed foods, including staples such as bread, chocolate, ramyeon, coffee and frozen food, jumped 4.1 percent from a month earlier, according to Statistics Korea.
Vice Finance Minister Kim Beom-seok warned that prices for eggs and chicken could spike 'if we don't respond properly," due to an outbreak of highly pathogenic bird flu in Brazil, a key exporter of boneless chicken to Korea.
Analysts say food companies held off on price hikes earlier this year in cooperation with the previous government, but began raising prices en masse during the political vacuum triggered by former President Yoon Suk Yeol's impeachment.
Lee's emergency task force, established via executive order on his first day in office, June 4, held its second meeting Monday, bringing together economic aides; key ministers from the economy, industry and infrastructure portfolios; and officials from the Financial Services Commission.
It was expected that the size of the second extra budget would be revealed at the meeting, but the government deferred the announcement.
To achieve the administration's 3 percent potential GDP growth target, above the OECD's 2.02 percent forecast for 2025 and the Bank of Korea's 2 percent range for 2024-2026, the government is expected to rely on two main pillars: a second supplementary budget, and major investments in emerging industries such as artificial intelligence, paired with structural reforms to enhance industrial competitiveness.
The ruling Democratic Party of Korea signaled the additional budget will total between 20 and 21 trillion won, following the 13.8 trillion won supplementary budget passed in May to support disaster recovery and bolster industries affected by US tariff tensions.
'Amid an unprecedented domestic demand slump, small business owners and the self-employed are on the brink of collapse,' said Democratic Party spokesperson Rep. Jo Seoung-lae.
'We urge the opposition to actively cooperate in the prompt passage of the supplementary budget to protect the people's livelihoods.'
Investor sentiment appears to be shifting. Global banks are revising their growth outlooks for Korea upward from previously pessimistic projections.
Barclays recently raised its 2025 GDP forecast from 0.9 percent to 1.0 percent, citing the likelihood of expansionary fiscal policy regardless of political leadership.
Goldman Sachs increased its projection from 0.7 percent to 1.1 percent, estimating that a second supplementary budget equal to 1 percent of GDP could lift this year's growth by 0.3 percentage points.
Citigroup economist Kim Jin-wook expects the upcoming stimulus package, estimated to be between 20 trillion and 35 trillion won, to boost total Korean Treasury Bond issuance for 2025 to between 227.1 trillion and 242.1 trillion won, significantly above the 2020–2024 average of 169.5 trillion won.
'Given the limited room for excess tax revenue and public funds, the second extra budget will likely be financed mostly through additional net treasury bond issuance,' Kim said.
