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S.Korea to frontload 2017 budget in H1 on "consumption cliff" concerns

Xinhua, December 23, 2016 Adjust font size:

South Korea plans to frontload over 60 percent of 2017 budget in the first half on rising concerns about so-called "consumption cliff" referring to an abrupt drop in consumer spending amid growing uncertainties.

The government and the ruling Saenuri Party held a meeting on Friday, agreeing to bring forward next year's fiscal expenditure. Over 30 percent of budget will be spent in the January-March quarter, and over 60 percent will be allotted to the first half.

The government side also promised to actively consider drawing up a supplementary budget plan until February next year on expectations that private consumption may abruptly drop on uncertainties at home and abroad.

Concerns escalated about massive household debts that have been rapidly growing amid the record-low interest rates and the eased regulations on mortgage financing.

The Bank of Korea, the country's central bank, cut its benchmark rate from 3.25 percent in July 2014 to an all-time low of 1.25 percent in June this year.

The government recently began to tighten loans to households, but its effect would be limited as it already raised the loan-to-value (LTV) and the debt-to-income (DTI) ratios to encourage households to buy new apartments with borrowed money.

The expected three rate hikes in the United States next year would cause higher borrowing costs here, resulting in heavier debt-servicing burden for households in South Korea.

Political unrest also weighed down on private consumption and corporate investment. After President Park Geun-hye was impeached earlier this month, sentiment among consumers and businesses worsened on rising uncertainties in the political arena.

Finance Minister Yoo Il-ho, who doubles as deputy prime minister for economic affairs, said Thursday that the country's growth outlook for 2017 would be revised down from the current forecast of 3 percent.

Yoo said that if the growth forecast is downgraded to around the middle of 2 percent, the extra budget plan can be introduced. Endit