South Korea’s Fiscal Focus

SEOUL (Reuters) – South Korea’s Finance Minister Choi Sang-mok indicated on Wednesday that the government’s short-term priority is addressing the slowing domestic demand rather than the increasing household debt.

“As the deputy prime minister for economic affairs, I think the recovery of domestic demand is a little more important in the short term,” stated Choi at a discussion forum when asked about policy priorities.

He anticipated that the Bank of Korea would make prudent decisions following a recent interest rate cut from the U.S. Federal Reserve.

The U.S. central bank recently initiated a series of interest rate cuts, starting with a significant half-percentage-point reduction, as remarked by Federal Reserve Chair Jerome Powell, aimed at maintaining a low unemployment rate amid easing inflation.

Meanwhile, the Bank of Korea opted to keep interest rates steady at 3.50%, their highest level since late 2008, amidst concerns over rising house prices and household debt, despite slow domestic demand and declining inflation.

In August, South Korea witnessed a resurgence in house prices, particularly in Seoul, which recorded its most significant increase in over 4-1/2 years, despite government measures intended to enhance real estate supply.

Choi noted that the government will persist with strategies to stabilize the housing market through increased supply and will soon unveil new measures to manage construction firms’ input costs.

Looking ahead, South Korea’s economic growth is projected at a mid-2% level for 2024, exceeding its growth potential, with strong exports likely driving this growth, although the recovery of domestic demand remains relatively slow.