The impact of the additional budget is uncertain during the Middle East crisis – Korea Times

Rising energy prices and a series of downward revisions to Korea’s growth outlook are raising questions about whether the government’s proposed additional budget of 25 trillion ($16.5 billion) will prevent a recession from the Middle East crisis.

Analysts said on Sunday the package could help ease the immediate burden on households, but would have little impact on growth if external uncertainty persists and inflationary pressures persist.

Last Thursday, the OECD cut its 2026 growth outlook for Korea to 1.7 percent from its December projection of 2.1 percent, citing potential problems from the Iran crisis and rising energy costs.

The world’s financial banks have made similar changes. Citibank recently lowered its forecast to 2.2 percent from 2.4 percent, while Barclays cut its forecast to 2 percent from 2.1 percent.

In a recent report, Woori Financial Research Institute said that if international oil prices remain above $100 per barrel, Korea’s annual growth rate may drop by more than 0.5 percent given that the economy is highly dependent on energy imports.

In response, the government organizes an additional budget of 25 trillion won to cover the result of high energy costs.

The Ministry of Planning and Finance plans to bring the proposal to the National Assembly on Tuesday, and the ruling Democratic Party of Korea wants it passed to a plenary session on April 9.

While the details of the measures have yet to be revealed, officials said the package will focus on easing the burden of high oil prices on households, with targeted support for those most affected.

Officials also said the budget will be supported without issuing additional government bonds, instead relying on higher taxes than expected, undermining concerns about fiscal soundness.

Eggs are on display in Seoul’s market on Thursday, as the government said it will increase the list of closely watched consumer prices to 43 key items, increasing tariffs on goods and services as part of emergency measures linked to the Middle East crisis. Yonhap

Although analysts said the financial support could help ease the burden on households struggling with high oil prices and inflation, they expressed doubts that it would boost overall growth significantly.

“Since the conflict in the Middle East is likely to last for a long time, the supplementary budget is the only policy tool that the government can use to reduce the immediate burden on those most affected,” said Jeong Se-eun, an economics professor at Chungnam National University.

“The planned support is expected to help ease the pressure on households, but is unlikely to provide a significant boost to overall growth, especially as the impact of the Middle East crisis continues,” he added.

Kim Dae-jong, a professor of business administration at Sejong University, expressed a similar opinion, saying that the additional budget package seems reasonable in size and can help reduce the pressure on household finances if it is considered properly, but an excessive injection of money can increase the pressure on prices and the weight of growth in general.

“Monetary policy will need to be carefully coordinated with the central bank’s monetary stance amid expectations of a rate hike later this year,” he said.

Meanwhile, the main opposition People Power Party (PPP), criticized the supplementary budget plan, describing it as “money laundering aimed at attracting voters ahead of the June 3 local elections.”

Lekoko asked the parliament to ask the government questions before considering the proposal.

“In an emergency where inflation is high and exchange rates are unstable, the government’s reliance on a supplementary budget shows an irresponsible policy stance that could deepen the crisis,” PPP Rep. Choi Bo-yoon said Sunday.