South Korea cuts 2016 GDP growth forecast, plans to inject fiscal stimulus

The South Korean government has slashed its gross domestic product forecast for this year and said it would prepare fiscal stimulus to support the lackluster economy. The announcement was made by the country’s Finance Ministry Tuesday, followed by a decision of the central bank in June to lower its main policy rate to a record low amid new worries over the effects of the UK's planned exit from the European Union on South Korea's trade-dependent economy.

South Korea's government has cut its GDP forecast for 2016 to 2.8 percent from 3.1 percent and expects inflation to average 1.1 percent for 2016, slower than the 1.5 percent projected in December and 1.9 percent for 2017. It averaged 0.7 percent for 2015, well below the central bank's annual target of 2 percent.

South Korea's current-account surplus is expected to continue to narrow from last year's estimated USD106 billion to USD98 billion in 2016 and USD84 billion in 2017, partly due to expected gains in oil prices, the ministry said. As many as 300,000 new jobs are likely to be added in 2016, less than 340,000 jobs created in 2015, it added.

The country is planning a Won20 trillion (USD17 billion) stimulus package including a Won10tn extra budget to boost sluggish economic growth and stabilize financial markets in the wake of the UK’s decision to leave the EU. The stimulus shall aim to focus on creating more jobs and reducing the negative effects of continued corporate restructuring in ailing industries such as shipping and shipbuilding, it said.

Meanwhile, the government has also decided to push for structural reforms to revive the ailing industries as it braces for growing uncertainties from global risk factors such as the UK's exit from the European bloc.