South Korea to pump $11b more into economy

Seoul: South Korea said on Monday it plans to pump an extra $11 billion (Dh40.4 billion) into its economy next year to help soften the impact of the global financial storm, which is beginning to hit exports - the country's economic lifeblood.

The pledge coincided with news of lower-than-expected inflation, which analysts saw as possibly paving the way for another interest rate cut this week after last week's record 75 basis point cut to prop up Asia's fourth largest economy.

"The Bank of Korea will likely cut the rates further, at least by 25 basis points this Friday. If not, it may push the financial market into a tailspin again," said Park Jong-youn, fixed-income analyst at Woori Investment & Securities.

The promise of more budget spending and tax cuts came just after data showed export growth had fallen to a 13-month low in October, offering stark proof of the damage from the global economic downturn.

The pledge also follows last month's more than $130 billion package earmarked by the authorities to shore up the financial sector.

Growth rate

"If the current situation continues, the economy is expected to grow by around 3 per cent next year. If the global economy shrinks further, it may be difficult to achieve 3 per cent growth," Finance Minister Kang Man-soo told reporters.

With the new injection on top of a series of initiatives to guard the economy from the looming global recession, growth next year could reach 4 per cent, Kang said, still short of the 5 per cent the government had hoped for.

Economists were cautious with forecasts.

"While they (the measures) will certainly help, most investors believe it will take some time before benefits of those measures are reflected in the real economy," said Hwang Keum-dan, analyst at Samsung Securities.

The promise of more aid and news that inflation in October hit 4.8 per cent, its lowest since April, however, brought relief to the country's battered won and share prices which have both slumped by about a third this year.

The won finished local trading up 2.3 per cent at 1,261.6/3.0 per dollar.