"Expansionary Fiscal Policy Inevitable for New Administration"

Korea Investment & Securities Report
"Attention Needed on the National Fiscal Management Plan"

Korea Investment & Securities analyzed on June 4 that, in relation to the election of Lee Jaemyung of the Democratic Party of Korea as the 21st president, attention should be paid to the budget proposal and the National Fiscal Management Plan at the end of August.

The company expects the government to maintain an expansionary fiscal stance, and said that this will likely be confirmed through the "2025-2029 National Fiscal Management Plan," which is scheduled to be announced around the end of August.

It is expected that the government will propose, in the National Fiscal Management Plan, to keep the managed fiscal balance at around -5% of GDP through next year, and then to gradually reduce the fiscal deficit from 2027. President Lee Jaemyung stated in his policy pledges that "when considering the budget growth rate, the potential economic growth rate and the target inflation rate will be reflected." The Bank of Korea and the Korea Development Institute forecast this year's and the base economic growth rates at 0.8% and 1.6%, respectively. Considering President Lee Jaemyung's pledge to "achieve a 3% potential growth rate," the company explained that maintaining an expansionary fiscal policy until the end of his term would be inevitable.

Korea Investment & Securities expects that, if the new administration maintains an expansionary fiscal stance as pledged by President Lee Jaemyung, the economic growth rate will rise, at least in the short term. The company also analyzed that the Bank of Korea will maintain a cautious approach, with Governor Rhee Changyong emphasizing at the May Monetary Policy Board meeting the need to monitor "side effects that could arise from lowering interest rates too quickly." The company maintained its forecast for an additional 25bp cut in the base rate in October this year and a year-end base rate of 2.25%.