[Weekly Review] Next Year's 607.7 Trillion 'Super Budget'... Highest Inflation Rate in 10 Years

[Sejong=Asia Economy Reporter Son Seon-hee] The next year's budget bill, the largest ever at 607.7 trillion won, has passed the National Assembly. The accumulated national debt has surpassed 1,000 trillion won, and the debt-to-GDP ratio has risen above 50% for the first time in history.

◆ Era of 607.7 trillion won national finances... Massive reflection of 'Lee Jae-myung budget' = On the 3rd, one day past the legal deadline, the National Assembly held a plenary session and approved the 2022 budget bill amounting to 607.7 trillion won. This is 3.3 trillion won more than the original government proposal. Generally, the budget bill is reduced after National Assembly review, but it has increased for two consecutive years following last year.

Next year, a significant portion of the budget is allocated to support groups affected by the COVID-19 pandemic. The government increased the budget for loss compensation and tailored support for non-eligible industries by 2 trillion won from the government proposal (8.1 trillion won) to 10.1 trillion won. Using these funds, the minimum loss compensation for small business owners will be raised sharply from 100,000 won to 500,000 won per quarter. Additionally, 35.8 trillion won in ultra-low interest loans at an annual rate of 1.0% will be supplied to 2.13 million small business owners.

The budget for regional economic revitalization was increased by 1.7 trillion won. In particular, the national treasury support for issuing local love gift certificates, mentioned by Lee Jae-myung, the Democratic Party candidate, was increased 2.5 times from 6 trillion won to 15 trillion won. Including the 15 trillion won budget from local governments, the total amounts to 30 trillion won. This is a massive increase of 24 trillion won compared to the original government proposal (6 trillion won). Additionally, 2.4 trillion won will be invested to reinforce local finances such as local allocation tax.

To increase such populist budgets, next year's research and development (R&D) budget was cut by 300 billion won, and the defense budget was reduced by 600 billion won. Furthermore, the budgets for diplomacy and unification and safety-related expenses were each cut by 100 billion won.

Next year's national debt will increase by 108.4 trillion won from this year to 1,064.4 trillion won. This is the first time in history that the national debt has surpassed 1,000 trillion won. The debt-to-GDP ratio rose 2.7 percentage points from 47.3% this year to 50.0%. This means that all economic agents in the country are carrying debt equivalent to half of the value they produce in one year.

◆ Inflation surges 3.7% in 10 years... Government fails to manage inflation = According to the 'November Consumer Price Trends' released by Statistics Korea on the 2nd, the consumer price index last month was 109.41 (2015=100 base), up 3.7% compared to the same month last year. This is the largest increase in 9 years and 11 months since December 2011 (4.2%).

The main driver of inflation was the rise in petroleum prices due to the international high oil price trend. Petroleum prices rose 35.5%, the highest since July 2008 (35.5%). The strong prices of personal services and agricultural, livestock, and fishery products also influenced inflation. The living cost index, which explains perceived inflation, rose 5.2%, the highest increase since August 2011 (5.2%).

Oh Un-seon, the Economic Trend Statistics Director at Statistics Korea, explained, "The price increases of agricultural, livestock, and fishery products and industrial products expanded significantly, increasing the overall inflation rate by 0.5 percentage points compared to the previous month."

However, excluding these temporary factors, the core inflation rate (index excluding agricultural products and petroleum) also rose 2.3% compared to the same month last year, recording 108.75. This marks two consecutive months in the 2% range following October (2.8%).

The government's prediction that inflation would stabilize in the second half of the year was completely off. The government also failed to achieve its target of managing inflation within the 2% range. As of now, with only one month left in the year, the cumulative inflation rate is 2.3%. The Organisation for Economic Co-operation and Development (OECD) raised South Korea's inflation forecast for this year by 0.2 percentage points from 2.2% to 2.4% in its 'World Economic Outlook' report released on the 1st.

◆ November exports surpass $60 billion for the first time... Record high = Last month, South Korea's exports surpassed $60 billion for the first time on a monthly basis, setting a record high. According to the Ministry of Trade, Industry and Energy on the 1st, November exports amounted to $60.44 billion, a 32.1% increase compared to the same period last year. This is the largest monthly figure since trade statistics began in 1956. It reached the $50 billion monthly export mark in October 2013 and has now reached the $60 billion level after 8 years and 1 month.

Thus, monthly export amounts have increased for 1 year and 1 month consecutively since November last year. At the same time, exports have recorded double-digit growth rates for 9 consecutive months.

Imports increased by 43.6% to $57.36 billion. The trade balance recorded a surplus of $3.09 billion, marking 19 consecutive months of surplus.