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Economy ‘continues to stagnate,’ KDI reports

June 11,2019
As the state-run think tank again expressed concern over the weakening economy, Minister for Economy and Finance Hong Nam-ki stressed the need for expansionary fiscal policy to help boost growth.

In a meeting with U.S. Treasury Secretary Steven Mnuchin in Tokyo, Finance Minister Hong also discussed countervailing duties and sanctions against Iran.

On Monday, the Korea Development Institute (KDI) released a report in which it said Korea’s economy “continues to stagnate.” This is the third consecutive month that the KDI reported a negative outlook.

The think tank noted that while production in April increased slightly, more working days were the biggest contributor.

The KDI report said it is too early to conclude that production is trending upward.

“Overall industrial production is weak,” the report noted. It also warned about sluggish exports, especially amid growing tensions between the United States and China.

Exports to the two countries account for 38.9 percent of Korea’s total.

It said as the U.S. economy is showing signs of slowing, China’s economic indicators are worsening on the deepening trade conflict.

The report from the think tank came a day after the Blue House changed its tone on the economy.

Previously, President Moon Jae-in maintained confidence in the economy, even stating that Korea was on the right course.

But on Sunday, Blue House economic secretary Yoon Jong-won said growing external uncertainties are affecting 60 to 70 percent of Korea’s economic growth. Yoon called on lawmakers to swiftly approve the 6.7 trillion won ($5.6 billion) supplementary budget, which has been sitting at the National Assembly since late April.

This sentiment was echoed by Finance Minister Hong, who was in Fukuoka, Japan, over the weekend attending the G-20 Finance Ministers and Central Bank Governors Meeting.

The Korean Finance Ministry said Monday that Hong and Christine Lagarde, head of International Monetary Fund (IMF), on Saturday established an understanding on the Korean government’s need to expand its fiscal policy, a move recommended by the IMF in March.

The team, which was led by Tarhan Feyzioglu, advised the Korean government to issue a supplementary budget equivalent to 0.5 percent of the nation’s gross domestic product.

The Korean government drew up a 6.7 trillion won supplementary budget.

During the meeting, Hong said the Korean government will work to get the supplementary budget approved by the National Assembly.

The finance minister also met with U.S. Treasury Secretary Steven Mnuchin in Fukuoka on Sunday. They discussed foreign exchange policy and sanctions against Iran.

According to the Korean Finance Ministry, Hong asked for details on countervailing duties the U.S. Commerce Department announced in late May against countries manipulating their currencies.

On May 23, the U.S. Commerce Department said it was proposing a rule that would impose duties on countries undervaluing currencies.

“This change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries,” said U.S. Commerce Secretary Wilbur Ross in a statement.

“Foreign nations would no longer be able to use currency policies to [the] disadvantage of American workers and businesses.”

Although Korea has never been labeled a currency manipulator, it remained on monitoring lists, along with other major U.S. trading partners.

With Korea’s export declining for six consecutive months, there has been growing concern over trade policy.

Mnuchin reportedly said the Commerce Department’s proposal is not focused on the currency value itself but rather a move to counter countries strengthening the competitiveness of goods through currency manipulation.

Hong also raised concerns about difficulties Korean SMEs are facing as a result of U.S. sanctions against Iran. He requested the United States resolve the situation as quickly as possible. Mnuchin reportedly answered that he expects the situation to be resolved through cooperation with Korea.

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