South Korea Minister Calls for Expansionary Fiscal Policy

Finance Minister Kim Dong-yeon on Friday called for an expansionary fiscal policy as South Korea’s economic growth slowed in the second quarter on a decline in private investment and weaker consumption.

Kim made the remarks during a parliamentary committee meeting, a day after the Bank of Korea said South Korea’s economy posted a 0.7% on-quarter gain in the April-June quarter, contracting from a 1% rise in the first quarter. From a year earlier, the country’s economy expanded 2.9%, Yonhap reported.

The near-term outlook for the South Korean economy is cloudy amid simmering trade tensions between the United States and China, analysts said.

Kim said the government will “reinvigorate” the domestic market by using an extra fiscal spending worth 4 trillion won ($3.6 billion) and a planned cut in the individual consumption tax on cars.

Although the government expects next year’s fiscal policy to be “more expansionary than originally planned,” it will also strengthen mid-term risk management, Kim told lawmakers.

Kim has said the second-quarter economic growth was roughly in line with the government’s expectations, and policies will be implemented to narrow income inequality and boost job creation going forward.

Separately, Kim said he will carefully consider the business community’s request that the minimum wage commission should deliberate again on its recent decision to raise the minimum hourly wage 10.9% to 8,350 won ($7.4) for 2019.

The commission—composed of representatives of labor, management and the government—made the decision earlier this month, sparking concerns from local businesses, especially small and medium-sized firms, that the hike could hurt small companies like mom and pop stores and thereby slow down the entire economy.

The South Korean economy is expected to see its sluggish employment improve in the remaining months of this year, led by the government’s efforts to ease the tight job market, the Bank of Korea said Friday.

The number of newly created positions stayed slightly above 100,000 per month over the February-June period in the aftermath of protracted corporate restructuring and a hike in the country’s legal minimum wage. It marked the worst job data since 2008 when Asia’s fourth-largest economy was reeling from the global financial crisis.