South Korea unveils $23 billion stimulus in wake of Brexit, sluggish growth

South Korea's presidential Blue House said the government is planning on proposing an extra budget around 10 trillion won due to the Brexit and sluggish economic growth.
South Korea's presidential Blue House said the government is planning on proposing an extra budget around 10 trillion won due to the Brexit and sluggish economic growth.PHOTO: AFP

SEOUL (AFP) - South Korea on Tuesday (June 28) announced an economic stimulus package of 20 trillion won (S$23 billion) as it cut its 2016 growth forecast due to slowing global demand and the fallout from Britain's shock decision to leave the EU.

The finance ministry revised its growth target for the year to 2.8 per cent from 3.1 per cent, and said it would provide a supplementary budget of 10 trillion won to create jobs and cushion the impact of ongoing state-run corporate restructuring on ailing industries.

"The scale of the supplementary budget was determined in consideration of the significant downward risk posed by the Brexit in the latter half of this year," Lee Ho-Seung, a senior ministry official, told reporters.

Another 10 trillion won will be provided by public funds and investments from state-owned institutions, the ministry said.

Global economic turmoil following Britain's vote on Thursday to leave the EU would likely hurt exports and jobs in Asia's fourth-largest economy, the presidential Blue House said in a statement.

Government-led reform of troubled industries, including the country's once-mighty shipbuilders, has led to mass layoffs of thousands of workers.

Slowing demand at home and abroad has also taken a toll on exports, which account for about a half of the country's economy and have fallen on-year for 17 consecutive months.

The central Bank of Korea, which cut its key interest rate to a record low 1.25 per cent this month, has already reduced its 2016 growth outlook to 2.8 per cent.

The South's economy expanded 2.6 per cent last year, the lowest since 2012.

Total household debt had snowballed to more than US$1 trillion as of late March, while wages have stagnated and housing prices have continued to rise.