South Korea Cuts 2017 Growth Projection

The South Korean government cut its growth projection for next year to 2.6% from 3%, reflecting tepid domestic consumption and weak exports.

The government will maintain loose fiscal policy and pressure state-run companies to spend more in an effort to shore up sagging consumer and business sentiment, the ministry of strategy and finance said Thursday in its report on 2017 economic policy, Bloomberg reported.

South Korea is already struggling with record-high youth unemployment, record household debt and job-shedding corporate restructuring. Businesses are reluctant to invest ahead of a likely national election next year, while structural challenges include rapid aging.

Frustration over the economy helped fuel a series of massive anti-government protests over the past two months, leaving potential successors to impeached President Park Geun-hye focused on offering solutions to problems such as rising inequality and the dual labor market, with some calling for breaking up the country’s chaebol, or family-controlled conglomerates.

If the Constitutional Court upholds Park’s impeachment, South Koreans should go to the polls to elect a new president by mid-2017.

The new official growth projection is in line with other recent estimates. The state-run Korea Development Institute cut its forecast for 2017 to 2.4% from 2.7% earlier this month, and LG Economic Research Institute pegged growth at 2.2% in a report last week.

The finance ministry said Thursday that it will spend the biggest portion of the yearly budget in the first quarter to respond to possible downside risks to the economy.

It said it will also mobilize state-owned companies to fill the spending gap left by the private sector. The companies could increase investments in earthquake-proof engineering, infrastructure and environmentally friendly businesses, the government said.

In the 40-page report, the ministry also introduced plans to address one of the fastest-growing problems for the nation’s $1.2 trillion economy: inequality in employment and wealth.

The ministry said the government will provide more jobs in the public sector next year. The government will closely look into practices in the job market including whether businesses comply with legal minimum wages and will offer tax benefits to companies offering full-time jobs to temporary workers, the ministry said.

In a country where almost seven in 10 high school graduates advance to college, unequal pay between regular and temporary workers has generated anger toward the government. Temporary workers, who make up some 35% of the workforce, earn only about half of what regular employees make for working the same number of hours in the same jobs, according to the Statistics Korea’s Korean Social Trends 2016 report.