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South Korea cuts GDP forecast, plans stimulus

Staff writer |
South Korea's government has cut its growth forecast for the year and said it would prepare fiscal stimulus to support the lackluster economy.

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The announcement by the Finance Ministry follows a decision by the central bank earlier in June to lower its main policy rate to a record low and comes amid new worries over the effects of the U.K.'s planned exit from the European Union on South Korea's trade-dependent economy.

The ministry said in a biannual outlook it now expects South Korea's economy to grow 2.8% in 2016, down from a 3.1% expansion projected in December. The South Korean economy expanded 2.6% in 2015. South Korea's economy is forecast to grow 3% in 2017, according to the outlook.

The export-led economy is losing steam on sluggish global trade. Shipments overseas continue to slump, domestic demand remains weak and corporate restructuring is weighing heavily on growth.

The ministry said it was preparing a stimulus package valued at more than $17 billion that includes extra budget spending. The stimulus focuses on creating more jobs and reducing the negative effects of continued corporate restructuring in ailing industries such as shipping and shipbuilding, it said.

The government will push for structural reforms and nurture new industries to sustain growth as it braces for growing uncertainties from global risk factors such as the U.K.'s exit from the European bloc, the ministry said.

The ministry now expects inflation to average 1.1% for 2016 - slower than the 1.5% projected in December - and 1.9% for 2017. It averaged 0.7% for 2015, well below the central bank's annual target of 2%.

South Korea's current-account surplus is expected to continue to narrow from last year's estimated $106 billion to $98 billion in 2016 and $84 billion in 2017, partly due to expected gains in oil prices, the ministry said. As many as 300,000 new jobs are likely to be added in 2016, less than 340,000 jobs created in 2015, it said.