South Korea eyes spending hike in a bid to boost growth

A sign indicating a shopping sale
Image caption South Korea has been trying to boost domestic demand in a bid to sustain its economic growth

South Korea is looking to increase its spending for the next financial year in a bid to spur job creation and boost domestic growth.

According to its budget proposal, the finance ministry said it was aiming to spend 326.1tn won ($275bn; £177bn) next year, a 5.5% increase from 2011.

The move comes amid concerns that slowing demand from key markets in the US and Europe, may hurt growth.

South Korea's economy currently relies heavily on exports for growth.

"The 2012 budget was set with a focus on job growth, while aiming to reach a fiscal balance in 2013," the ministry said in a statement.

Growth slowing

South Korea's growth rate has been slowing.

The economy grew at an annual rate of 3.4% in the three months to the end of June, down from 4.2% in the previous quarter.

Earlier this month, the International Monetary Fund cut its growth forecast for South Korea to 4% from its earlier projection of 4.5%.

However, analysts said that despite the slowdown, the economy was not facing any immediate threats.

"Its a mid-cycle slowdown in Korea, there is no danger of the economy going into a recession," Ma Tien Ying of DBS bank told the BBC.

Ms Ma added that given this scenario the government was being conservative in its budget proposals.

Future options

Although the government is seeking to increase its spending, it also said that is was planning to bring down the budget deficit to 1% of the gross domestic product (GDP) in 2012, from an estimated 2% this year.

Analysts said the authorities are doing this in an attempt to ensure they have enough fire power to boost growth, should global economic conditions deteriorate further.

A cautious approach to spending, may leave the government with extra cash at their disposal, which can be pumped into the economy if growth slows further.

"In case there is a global recession coming, Korea will have the scope to increase its spending substantially." said Ms Ma.

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