[Viewpoint] A Supplementary Budget Is Needed to Revitalize Growth Momentum

What is the greatest crisis facing the South Korean economy? Many economic experts answer that it is the "loss of growth momentum." Key causes include demographic changes due to low birth rates and aging population, declining competitiveness in core industries such as semiconductors and automobiles, and insufficient investment in future industries like artificial intelligence (AI).

The prevailing view is that this year’s economic growth rate will be only in the 1% range. The Korea Development Institute (KDI), a government research institute, released its growth forecast for this year at 1.6% on the 11th. KDI’s forecast has been downgraded from 2.1% in August last year to 2.0% in November, and now has dropped by 0.4 percentage points. This outlook is gloomier than the government’s (1.8%) and the Bank of Korea’s (1.6?1.7%). It expects a continued slump in the real estate market and contraction in construction investment, along with a significant slowdown in export growth, which had supported the Korean economy last year. This forecast also reflects political instability due to the emergency martial law situation and the Trump risk.

As the economy worsens, calls for an additional supplementary budget (chugyeong) to inject more fiscal funds are growing louder. Discussions on drafting the supplementary budget have accelerated in the National Assembly. The National Finance Act allows for supplementary budgets to be prepared in cases of economic recession or mass unemployment. The current economic situation can be regarded as a recession, justifying fiscal expansion. Such measures can be effective in interrupting a worsening economic cycle midway. However, it is unlikely that fiscal injections on the scale of 20 to 30 trillion won alone will dramatically improve the economy. At this point, the crisis is not severe enough to warrant distributing support payments or subsidies to the majority of the population.

Regarding the supplementary budget, the question is not whether to implement it, but where and how much to allocate. The most urgent priority is to focus support on construction workers and self-employed individuals who are facing increasing difficulties. Unsold apartments are accumulating mainly in provincial areas, and the number of small and medium-sized construction companies closing down is rising. Some even argue that the collapse of the real estate market is just beginning.

What requires even greater concern is the crisis in South Korea’s core industries. The semiconductor industry is a prime example. The United States’ all-out tariff war now targets semiconductors and automobiles. Samsung Electronics, which has experienced repeated setbacks in recent years, currently symbolizes the South Korean economy. While the U.S. is pioneering future industries led by AI, South Korea has been left behind. China has already caught up with or surpassed South Korea in most industries. Both the U.S. and China are pouring massive subsidies into the semiconductor industry. South Korea has lost its footing. Samsung Electronics is no exception.

The political calls for this supplementary budget to become the so-called “AI supplementary budget” seem to reflect this sense of crisis. It is somewhat fortunate that the ruling and opposition parties belatedly submitted the “K-Chips Act” to the full meeting of the Finance and Economy Committee. It is also noteworthy that voices within the opposition party, which had neglected economic growth, are increasingly calling for a focus on industrial policies to promote growth. The supplementary budget should not merely be about distributing cash. While taking care of livelihoods, investments must also be made in the country’s future growth engines to foster new growth momentum. If the ruling and opposition parties unite in this effort, the South Korean economy may find a faint glimmer of hope amid the darkness.