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27 Mar 2013
Forex Flash: Expect a sizable South Korean supplementary budget - Nomura
Nomura economist Young Sun Kwon is expecting a sizable South Korean supplementary budget tomorrow.
Young begins by noting that tomorrow, the government announces its economic policy plan for 2013 and although details of specific stimulus measure will focus next week, he is expecting a supplementary budget of KRW14trn which is about 1% of GDP. He notes that past supplementary budgets have varied in size, averaging 0.5% of GDP between 1999 and 2008. A budget of 1% of GDP would equal those seen in 2001 and 2003, but falls short of the 2.7% of GDP seen in the recessions of 1998 and 2009.
He estimates that the KRW14trn would breakdown along the lines of KRW4trn to make up for a shortfall in tax revenue, and KRW10trn for extra expenditure. Further, he believes that the KRW10trn of extra spending to add 0.4 percentage points to GDP growth in 2013, will have the same effect, according to the Bank of Korea‟s macro model, that 100bp of rate cuts would have. Overall, he believes that the combination of a supplementary budget and property market stimulus measures should add sizable upside risk to his 2.5% GDP growth forecast. Further, he is maintaining his call for no rate cuts.
Young begins by noting that tomorrow, the government announces its economic policy plan for 2013 and although details of specific stimulus measure will focus next week, he is expecting a supplementary budget of KRW14trn which is about 1% of GDP. He notes that past supplementary budgets have varied in size, averaging 0.5% of GDP between 1999 and 2008. A budget of 1% of GDP would equal those seen in 2001 and 2003, but falls short of the 2.7% of GDP seen in the recessions of 1998 and 2009.
He estimates that the KRW14trn would breakdown along the lines of KRW4trn to make up for a shortfall in tax revenue, and KRW10trn for extra expenditure. Further, he believes that the KRW10trn of extra spending to add 0.4 percentage points to GDP growth in 2013, will have the same effect, according to the Bank of Korea‟s macro model, that 100bp of rate cuts would have. Overall, he believes that the combination of a supplementary budget and property market stimulus measures should add sizable upside risk to his 2.5% GDP growth forecast. Further, he is maintaining his call for no rate cuts.