The South Korean government turned more pessimistic about growth prospects for this year and the next, citing challenges on the external front from intensified trade barriers and worsening job and demand conditions at home to argue for higher fiscal spending for next year.

In its outlook for 2018 and 2019 economy and policy direction for the second half released on Wednesday, the Ministry of Strategy and Finance cut growth estimate for the gross domestic product (GDP) for this year to 2.9 percent from 3.0 percent maintained throughout the first half. For next year, the ministry projected a 2.8 percent growth.

The downgrade coincided with the Bank of Korea’s latest estimates for this year and the next.

The current account surplus is estimated to narrow to $64 billion this year from last year’s $78.5 billion as exports growth are expected to significantly slow to 5.3 percent against the 15.8-percent gain in 2017, the ministry said. It estimated exports growth could stop at 2.5 percent next year.

The government projected 180,000 jobs will likely be added this year, which is sharply below its target of 320,000 and last year’s addition of 320,000. Next year, the government set a goal of creating at least 230,000 jobs.

Korea’s job market has been sluggish with on-year growth staying below 200,000 for the fifth straight month in June - a phenomenon last seen in the aftermath of the 2008 global financial crisis, according to data from Statistics Korea. The ministry cited structural reasons for the faltering job market such as poor performance by major industry sectors, a drop in working age population, and increased automation at workplaces.

To combat challenges and prevent further slowdown, the Korean government proposed to bump up fiscal spending by 5.7 percent against this year’s record budgetary spending of 429 trillion won ($380 billion).

“We will increase fiscal spending more than we had planned for 2019 to keep up accommodative stance within sustainable level for mid and long-term,” the ministry said in the policy direction report.

The government also plans to introduce a 4 trillion won stimulus package to boost the country’s weak domestic spending. It will extend the state subsidy program for small-scale employers to lessen the burden from the hike in minimum wage. The program initially was planned just for this year after the minimum wage went up by 16.4 percent from the beginning of the year. The government decided to continue with the program within this year’s offering of 3 trillion won in light of weak job conditions and hardship on small companies from higher labor cost. Next year’s minimum wage is set to go 10.9 percent higher from this year’s level to 8,350 won per hour.

On the external front, the ministry plans to take preventive measures to fend off risks from the trade war between the United States and China, rising international oil prices, and monetary tightening pace in the U.S.

By Hye-seung Seo and Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]