South Korea commits to KRW15 trillion stimulus package: Is it enough?

SEOUL – South Korea’s Finance Minister, Choi Kyung-hwan, today formally announced an economic management plan for the second half of 2015 that aims to combat Middle East Respiratory Syndrome (MERS) and declining exports.

The Ministry said MERS could pare growth by 0.2-0.3%. It revised GDP growth forecast down to 3.1% for 2015, down from an earlier forecast of 3.8%. The CPI projection is also lowered to 0.7%, from 2% previously.
Exports are forecast to decline by 1.5% in 2015 and the imports are projected to contract 7%. The current account surplus is expected to be USS94 billion in 2015 (compared with USS89 billion in 2014 and an earlier projection for 2015 of USS82 billion) and US$88 billion in 2016.
Kim Hye-cheon, director for the Finance Ministry’s Treasury Bureau, said that bond sales will concentrate in 3 and 5-year maturity rather than longer dated notes to ease market volatility.
In commenting on the package, ANZ Bank said the announcement did not surprise as ANZ has called for a supplementary budget since March.” The revised forecast of 2015 GDP of 3.1% is also the same as ANZ’s current forecast. Our initial estimate of MERS impact was 0.4%, a bit higher than Ministry’s current assessment of 0.2-0.3%.”
 
ANZ said the focus is obviously on the total size of the extra budget and that the figure of  KRW15 trillion “appears small to us”.

“We have previously estimated that KRW20-25 trillion, equivalent to 1.5% of GDP, is required to make a meaningful impact, recalling that the supplementary budget was KRW17 trillion in 2013. With MERS in 2015, the package should have been larger.” www.live.anz.com (ATI).