South Korea to invest $45 billion in stimulus projects to support economic recovery

South Korean authorities are exploring measures to support the local economy in response to ongoing political turmoil and to address potential challenges posed by the incoming US administration. 

Acting President and Minister of Economy and Finance Choi Sang-mok pledged on January 3 to focus on maintaining the country's export performance and providing relief for local businesses amid a period of economic uncertainty, Caliber.Az reports citing South Korean media.

Choi acknowledged the current economic difficulties, including a slow recovery in domestic consumption, and noted that the country is facing unprecedented uncertainties.

He highlighted the government's plans to develop response strategies to address risks in the trade environment, particularly the anticipated impact of the new US administration, led by President-elect Donald Trump, who may introduce more stringent trade policies affecting South Korea.

In response, Choi committed to providing state support for critical sectors such as artificial intelligence and bio-health. He also promised to reduce unnecessary regulations to encourage new economic growth drivers. In addition, Choi outlined plans to offer "bold and exceptional support" to small and medium-sized enterprises (SMEs), including enhanced tax incentives.

The proposals include a temporary investment tax credit for SMEs, an increase in income tax deductions for credit card usage, and efforts to stimulate domestic spending through government-issued gift certificates.

In parallel, Bank of Korea (BOK) Governor Rhee Chang-yong emphasized the importance of flexible monetary policy in light of the unpredictable political and economic climate.

The BOK is under pressure to adjust interest rates in response to ongoing economic risks, such as the country's record-low local currency exchange rate against the US dollar and the fallout from a deadly plane crash. These developments have exacerbated an already bleak economic outlook, which has been further complicated by the political crisis surrounding the botched imposition of emergency martial law and the impeachment of President Yoon Suk-yeol.

Despite these challenges, South Korea's Ministry of Finance expects economic growth to slow to 1.8% in 2024, down from an earlier forecast of 2.2% and lower than the estimated 2.1% expansion in 2023.

To counteract this decline, 26 major public institutions are set to invest 66 trillion won ($45 billion) this year, focusing on projects to stabilize the housing market, enhance infrastructure for energy, transportation, and logistics, and support broader economic stimulus efforts.

By Tamilla Hasanova