Extra Budget Does Not Alter Growth Outlook

The KRW28.9trn (US$21bn) supplementary budget presented today does not alter our forecast that the South Korean economy will contract by 3.3% in 2009 as this projection already incorporates a sharp increase in government spending. Meanwhile, the heavy reliance on government bond issuances to finance the increased spending is placing upward pressure on bond yields and is thus undoing the monetary easing effected by the Bank of Korea, which could turn to absorbing some of the oversupply of T-bonds to alleviate lending conditions for the corporate sector.

To read the full article, please choose one of the following options: