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Blue House admits economic risks are growing

The government plans to increase spending to combat uncertainties
June 10,2019
The Blue House admitted to the growing risk of global uncertainties including the ongoing trade war between the United States and China on the Korean economy.

Until last month, President Moon Jae-in has continuously expressed confidence in the Korean economy, saying “overall our economy is heading toward success.”

He even said the public can have confidence in Korea’s economic power, adding that the macroeconomics are very solid.

These optimistic comments drew heavy criticisms as economic indicators pointed toward a weakening economy.

Even Korea’s current account balance, which has been a solid fundamental, has posted a deficit for the first time in seven years.

Yet the solution the government has offered in response to the possibility of growth slowing is larger spending.

“The downward risks to our economic growth as well as that of the global economy has expanded,” said Blue House top economic secretary Yoon Jong-won on Sunday while predicting that the trade conflict between the United States and China will be extensive.

“The external uncertainties have become larger than what we expected earlier in the year,” Yoon added. “As trade conflict grew global trade and manufacturing activities have contracted more than what we had expected while price of semiconductors has fallen sharply.”

The Blue House secretary noted that 60 percent to 70 percent of the Korean economy is vulnerable to external factors.

“The Korean government has countered the various difficult situations with grounded reality,” Yoon said. “We have tried various measures including increasing this year’s budget by 9.5 percent, which is relatively the sharpest hike since the global crisis [of late 2008], expanded investment in public institutions and submitted the supplementary budget [to the National Assembly].”

He said while private think tanks are releasing lower forecasts, the government’s own adjusted outlook will be released around the end of this month when it announces its additional measures for the second half.

“We are currently working on second-half measures that will focus largely on revitalizing growth, including investment and exports,” Yoon said.

The Blue House especially raised concerns on the impact of slower economic growth on the job market, particularly for those in their 30s and 40s.

“This year, roughly 200,000 jobs have been added,” Yoon said, noting that jobs for young people have been increasing.

“However, the number of people employed in their 30s and 40s, which is a core [age] group, has slightly shrunk and uncertainties still remain considering the downward risks,” Yoon added.

The Blue House secretary, while noting that the government’s plan of front-loading 61 percent of this year’s budget in the first half is going as scheduled, stressed the need for the National Assembly’s cooperation in passing a supplementary budget submitted at the end of April.

Yoon also said the government is planning a third investment project, following the 2.3 trillion innovative growth and job creation project announced in October 2018 and the 6 trillion won ($5.08 billion) project announced in December aimed at boosting Korea’s semiconductor industry and establishing a global business center and automotive test centers.

Yoon said the government would need 10 trillion won to pursue the third project, along with larger investment in public institutions.

“Along with these projects, the swift approval of a supplementary budget is desperately necessary,” Yoon said. “In the last three years it took a maximum of 45 days for the National Assembly to pass a supplementary budget,” Yoon said. “We’ve already passed 43 days.”

He said that only when the supplementary budget is implemented early, the economy will improve and 10,000 to 20,000 jobs will be created.

“A failure to approve the supplementary budget will be the same as losing job opportunities,” Yoon said.

Last month, President Moon ordered the government to increase spending and not be shackled by keeping the national debt ratio below 40 percent.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]