South Korea is the latest Asian country to try and boost economic growth by spending hard, unveiling a 17.3 trillion won ($15.3 billion) stimulus plan.
The funds will be used to help small and medium-sized exporters, create jobs, boost a stagnant property market and cover a shortfall in tax revenue.
Recently, South Korea has been hurt by weak exports and subdued domestic demand.
The move is expected to help boost annual growth by 0.3 percentage point this year and create 40,000 jobs.
“This is a much-needed move,” said Kwon Young-sun, an economist with Nomura.
“It may not boost growth substantially but will help sustain the economy in the medium term amid the various pressures and challenges that it is facing.”
South Korea is the latest Asian country to try and boost economic growth by spending hard, unveiling a 17.3 trillion won stimulus plan
The move comes just weeks after the finance ministry cut the country’s growth forecast for the current year.
It said it expects the economy to grow by 2.3% in 2013, down from its earlier projection of 3%.
The biggest drag on growth has been a slowdown in exports, which account for almost half of South Korea’s total economic output. Shipments have been hit by weak demand in markets such as the US and the eurozone.
At the same time, recent fluctuations in currency markets have triggered concerns over a further slowdown in the sector.
The South Korean won has risen by nearly 10% against the US dollar since May, making its exports more expensive to foreign buyers.
A strong currency also hurts the profits of exporters when they repatriate their foreign earnings back home.
The main trigger for the gain in the won has been Japan’s decision to massively boost its stimulus and spending plans. At the centre of its new policy has been achieving a weaker yen in the hope of boosting exports.
Japan’s yen has dipped nearly 20% against the US dollar since November last year.
There are fears that because Japan and South Korea compete in similar markets, Korean goods may lose out as a result of the currency moves.
The Japanese yen has reached its lowest level since 2008 against the US dollar after the central bank began the latest round of its stimulus programme.
The yen fell as low as 98.85 against the dollar, before rebounding slightly.
Investors said the Bank of Japan’s plan to buy assets worth trillions of yen, which has government backing, would continue to weaken the currency.
As a result, the yen may break through the 100 mark against the dollar as early as this week.
The Japanese yen has reached its lowest level since 2008 against the US dollar after the central bank began the latest round of its stimulus programme
“This has really shaken up many people’s attitudes toward the Bank of Japan and the new government,” said Andrew Wilkinson, chief economic strategist at Miller Tabak and Co in New York.
“It feels like it’s gathered a whole new momentum behind it, as the doubters have joined the bandwagon and it’s becoming a self-fulfilling prophecy.”
Last week, the BOJ said it would double the supply of the currency in the market.
The central bank added that it would be much more aggressive in pursuing a 2% inflation target to boost growth.
A weak yen helps Japanese exporters keep their products competitive, as well as boosting profits earned overseas.
On Monday, exporters helped push the main Nikkei 225 stock index 3.1% higher, before the gains were pared back in later trading.
[youtube IT1UNeGWgEc]
Asian markets have risen, following gains on Wall Street, after the US Federal Reserve unveiled its latest stimulus plan.
The US central bank said it would buy $40 billion of mortgage debt a month and kept interest rates at below 0.25%.
It said it would also continue its programme to reduce long-term borrowing costs for firms and households.
Japan’s Nikkei 225 index rose 1.8%, South Korea’s Kospi gained 2.6% and Hong Kong’s Hang Seng added 2.5%.
This followed gains of 1.6% rise in the Dow Jones and S&P 500 indexes on Thursday.
Asian markets have risen, following gains on Wall Street, after the US Federal Reserve unveiled its latest stimulus plan
Investors are hoping the measures will revive growth in the US economy, the world’s biggest, and a key market for Asian exports.
“They’re saying that the punch bowl, the fuel for the economy, isn’t going away – it’s going to be here as long as you need it,” said Tony Fratto, managing partner at Hamilton Place Strategies, a policy consulting firm.
There have been growing fears about the global economy with a weak recovery in the US and the ongoing debt crisis in the eurozone.
The slowdown in China’s economy, the world’s second-largest, and one of its biggest drivers of growth after the global financial crisis, has fanned those fears.
Prompted by these concerns, policymakers in these regions have been taking measures to try to spur a fresh wave of growth.
The Federal Reserve’s announcement came days after the European Central Bank (ECB) announced its latest plan.
Last week, the ECB said that it would buy bonds from the bloc’s debt-ridden nations in an attempt to bring down their borrowing costs.
Meanwhile, China has cut its interest rates twice since June to bring down borrowing costs for businesses and consumers. Beijing has also lowered the amount of money that banks need to keep in reserve three times in the past few months to further encourage lending.
This week South Korea has also unveiled two stimulus measures aimed at boosting domestic demand and helping small businesses.
Analysts said the moves had helped reassure investors and markets that policymakers were doing all they could to ensure growth in the global economy.
“You’re witnessing global economic stimulus across the board,” said Quincy Krosby, a market strategist at Prudential Financial.
“The Fed’s actions are occurring in conjunction with the European Central Bank’s commitments to support the euro and amid talk that China could also deliver a stimulus package.”
