Despite heightened uncertainty over the scaling back of stimulus in the U.S., South Korea's finance ministry said the nation's economy will grow more than estimated this year on extra government spending and accommodative monetary policy.
The Ministry of Strategy and Finance on Thursday lifted its growth outlook for 2013 to 2.7 percent from the 2.3 percent estimated in March. For the next year, the ministry forecasts a 4 percent expansion.
Over the last two years, quarterly economic growth was below 1 percent. But the economy started to gain traction in the first quarter of 2013, the ministry noted.
The government under President Park Geun-hye in April unveiled an extra budget of KRW 17.3 trillion, or $15.4 billion. Since Park took office in February, she announced policies to boost the economy and to bring stability in the property market.
The ministry said 300,000 additional jobs will be created this year, instead of 250,000. As a result, the employment rate forecast was revised to 64.7 percent from 64.6 percent.
Combined with fiscal policy support, the rate reduction from the Bank of Korea also underpinned economic activity. The central bank lowered its key interest rate by a quarter point to 2.50 percent in May.
Inflation is seen at 1.7 percent rather than the initially projected 2.3 percent. The latest revision was part of its policy management plans for the second half of 2013.
The current account surplus projection for the whole year was raised to $38 billion from $29 billion. The surplus hit a record $8.64 billion in May on brisk exports.
South Korea is heavily reliant on overseas markets to drive growth. The ministry said sudden changes in capital flows from abroad and the uncertain movement in the Japanese currency pose downside risks to the economy.
For comments and feedback: editorial@rttnews.com