CHENGDU, China (Reuters) - South Korea’s economy is likely to grow about 2.8 percent this year as it will get a boost from extra government spending and stronger exports, Finance Minister Yoo Il-ho said on Saturday.
”I believe we can achieve 2.8 percent growth rate this year,
particularly after we planned to introduce the supplementary budget,” Yoo told Reuters on the sidelines of a meeting of Group of 20 finance ministers and central bankers.
The Bank of Korea has revised its 2016 growth outlook down to 2.7 percent from 2.8 percent. The finance ministry still maintains its growth forecast of 2.8 percent.
On Friday, Yoo said that South Korea’s economic growth this year would likely benefit by 0.2 to 0.3 percentage points from the government’s proposed 11 trillion won ($9.69 billion)supplementary budget and fiscal reinforcement stimulus plans.
The government will submit the extra spending plan to parliament next week and Yoo said he expected parliament to ratify the plan by Aug. 12.
The ministry has said the extra spending will focus on creating 68,000 new jobs to make up for severe job cuts as the struggling shipping and building industries are overhauled.
Yoo said he expected South Korea’s exports to improve in the second half due to recovering global demand.
“We expect from next month on, we are going to see a turnaround - an increase of exports, and probably imports as well, compared to last year,” he said.
South Korea’s exports fell for an 18th straight month in June, and though they declined by the slowest pace in a year, the potential impact on world growth after Britain’s divorce from the EU has analysts and policymakers urging caution over the outlook.
South Korea needs to rely on both fiscal and monetary policies to ensure economic growth is on track, Yoo said.
Last week, the Bank of Korea left rates unchanged after a surprise cut in June, slightly downgrading its growth and inflation forecasts and propping the door open to further easing as it monitors the government’s ongoing efforts to craft a supplementary budget.
He also said that China’s economy may have achieved a soft-landing as worries about an abrupt slowdown have abated.
Yoo said South Korea is in talks with some countries to expand existing currency swap agreements, but he did not give further details.
Turning to the global economy, he said G20 countries must step up policy coordination to boost growth and combat the rise of protectionism - the biggest challenge for South Korea’s export-led economy.
“Cooperation is more important than ever because of the trend against globalisation and the spread of protectionism,” he said.
($1 = 1,134.9900 won)
Editing by Jacqueline Wong