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South Korea planned to frontload 7.8 trillion won (7.6 billion U.S. dollars) in the second quarter as signs of the weakening private consumption were detected following the deadly ferry sinking disaster.
President Park Geun-hye held an emergency meeting with economy- related ministers, economic think tank heads and business representatives to come up with measures to bolster the hard-lit flames for recovery.
Consumer expenditure weakened after the 6,825-ton passenger ferry Sewol capsized and sank off the country's southwestern coast on April 16. More than 300 people were confirmed dead or missing, and two thirds of them were students and teachers from Danwon High School in Ansan, a city south of Seoul.
Deep sorrow swept all over the country. Schools cancelled class trips and loud cheering at baseball stadiums was banned. During the golden week from the May 1 Labor Day to the May 6 Buddha's Birthday, many South Korean people and companies delayed or cancelled entertainment, promotions and travel.
As a preemptive response to the worsening consumer sentiment, the government will spend 7.8 trillion won in the second quarter more than initially scheduled. During the April-June period, a fiscal spending by the central government will rise to 80.8 trillion won to 86.8 trillion won, with those for provincial governments set to expand from 26.9 trillion won to 8.7 trillion won.
The expanded fiscal expenditure is expected to raise the country's GDP growth by 0.2 percentage points in the second quarter on a quarterly basis. The real GDP grew 0.9 percent in the first quarter.
Private consumption was relatively sluggish by rising 0.3 percent in the first quarter from the prior quarter. Facility investment declined 1.3 percent in the three-month period.
Among the 244.4 trillion won set aside for policy funds in 2014, 60 percent will be frontloaded in the first half. A total of 2.9 trillion won in easy money set to be provided by Bank of Korea ( BOK) to companies through banks will be spent as early as possible.
The country's top central banker Lee Ju-yeol told a press conference after the May monetary policy meeting that consumer sentiment shrank significantly following the ferry disaster, saying that sales in department stores and discount chains slowed down or reduced.
Lee said negative effects of such disasters on the economy lasted for 1 to 2 months in the past, but he noted that it cannot be ruled out for the negative trend to continue longer than before.
The central bank kept its benchmark interest rate on hold at 2. 5 percent amid growing worries about the faltering private consumption caused by the deadly ferry incident.
Low-rate loans will be offered to companies in the tourism, transport and lodging industries which have been hit hardest by the ferry disaster. The companies will also be allowed to put off tax payment as long as 9 months, and will be given loan guarantees and loan maturity extensions.
Sightseeing cancellation in the tourism sector reached 5,476 contracts after the ferry accident, causing 27.6 billion won in losses to tour companies as of May 2. The losses were expected to continue growing.
The number of students heading to Jeju Island for spring-break trips plunged 75 percent between April 16 and 23, compared with the same period of last year. The sunken ferry was en route from the western port city of Incheon to the southern resort island of Jeju.
As South Koreans are mourning the victims nationwide, the using of cultural facilities also slid significantly. In the fourth week of April, the number of film-goers tumbled 29 percent from a year earlier. Amusement park visitors dropped 68 percent in the same period.
Meanwhile, growth in credit card spending continued to fall to 1.8 percent in the fourth week of last month from 6.9 percent in April 16 to 20. The rate was 25 percent between April 14 and 15.
Sales growth in department stores fell to 0.2 percent in the fourth week from 4.5 percent in the first week of April. The figure for discount outlets declined from 0.2 percent to minus 4.7 percent in the same period.
