[Weekly Review] Historic Super Supplementary Budget of 35.1 Trillion Won Passed by National Assembly... Corporate Sentiment Rebounds After 5 Months

The 3rd Supplementary Budget of 35.1 Trillion Passed by the National Assembly... National Debt Ratio Reaches 43.5%
Increased Budget for Employment Retention Subsidies, Employment Center Support, and University Indirect Support Projects

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The third supplementary budget (supplementary budget) in response to the novel coronavirus infection (COVID-19) has passed the plenary session of the National Assembly. The consumer price index in June was the same level as last year. In addition, the corporate sentiment index rebounded for the first time in five months due to the effects of policies and the resumption of economic activities.

◆ Third supplementary budget of 35.1 trillion won passes National Assembly... National debt ratio at 43.5% = The government’s largest-ever third supplementary budget to respond to the COVID-19 crisis passed the plenary session of the National Assembly on the 3rd. It was reduced by 200 billion won from the initially planned 35.3 trillion won.

This third supplementary budget includes a revenue adjustment of 11.4 trillion won to cover the expected tax revenue shortfall this year. There were increases in employment stability support (500 billion won) such as employment retention subsidies and employment center support, package support for youth housing, finance, and jobs (400 billion won), and indirect university support (100 billion won). On the other hand, the Hope Job Project was cut by 400 billion won.

Due to the increase in national debt, the national debt ratio to GDP rises to 43.5%. Last year, the government predicted through the '2019-2023 National Fiscal Management Plan' that the national debt ratio to GDP would rise to 39.8% this year.

The managed fiscal balance is expected to record a deficit of 111.5 trillion won, the largest since related statistics began in 2001. This deficit is 74.6 trillion won larger than last year’s original budget (-37.6 trillion won). However, through expenditure cuts and utilization of fund resources, it improved by 700 billion won compared to the government proposal (-112.2 trillion won). Meanwhile, the government plans to convene an extraordinary Cabinet meeting on the 4th to approve the announcement and allocation plan of the third supplementary budget.

◆ June consumer price inflation rate 0.0%... "Impact of rising prices of agricultural, livestock, and fishery products" = According to the Statistics Korea’s 'Consumer Price Trends' released on the 2nd, the consumer price index in June was 104.87 (2015=100), the same as the same month last year. To two decimal places, it fell by -0.01%. Ahn Hyung-jun, head of the Economic Trend Statistics Division at Statistics Korea, said, “The official inflation rate is calculated to the first decimal place according to the manual, so it is accurate to consider it as 0.0%.”

The year-on-year consumer price inflation rate first showed a negative value in August last year at -0.038%.

Price increases in agricultural, livestock, and fishery products (4.6%) raised the overall inflation rate by 0.35 percentage points, but price declines in petroleum products (-15.4%) and public services (-2.0%) lowered the overall inflation rate by 0.68 percentage points and 0.28 percentage points, respectively. Meanwhile, prices of industrial products including petroleum products fell by 1.4%. Ahn said, “Due to disaster relief funds, production in food and accommodation industries increased by 14.4%, but the inflation rate for dining out was only 0.6%. Inflation is a lagging indicator compared to industrial activity trends, so the effect of disaster relief funds will likely be reflected a bit later.”

◆ Manufacturing corporate sentiment rebounds after five months... Impact of policy effects = According to the Bank of Korea’s June Business Survey Index (BSI) released on the 30th of last month, the BSI for all industries was 56, up 3 points from the previous month. A figure below 100 means more companies view the economy pessimistically. However, the manufacturing industry BSI rose to 51, rebounding for the first time in five months.

The manufacturing BSI had steadily declined since January and fell to 49 last month, the lowest since February 2009 (43), before rebounding after five months. The overall industry BSI rose 3 points from last month to 56, showing an upward trend for two consecutive months.

Kang Chang-gu, head of the Corporate Statistics Team at the Bank of Korea’s Economic Statistics Bureau, explained, “This is mainly due to the effects of government policies such as the reimbursement policy for purchasing top-efficiency home appliances and emergency disaster relief funds, as well as the easing of export sluggishness caused by the resumption of economic activities in major countries.” Recent sales of domestic home appliance manufacturers (March 23 to June 18) increased 2.3 times compared to the same period last year.