Morgan Stanley says South Korea's 25 trillion won extra budget could support growth by 0.15 percentage points with limited inflation impact

Morgan Stanley, the global investment bank, projected that if the Government of South Korea implements an extra budget of 25 trillion won, it would lift the country's gross domestic product (GDP) growth rate by about 0.15 percentage points. The bank assessed that this would partly offset the downward pressure on growth stemming from high oil prices.
In a report released on the 27th, Morgan Stanley stated, "There is a high likelihood that the Government of South Korea will present an extra budget bill by the end of this month and begin executing it from late April."
The report also argued that "the planned extra budget does not appear overly burdensome in terms of fiscal capacity." It noted that the National Assembly Budget Office (NABO) has set this year's tax revenue forecast somewhat conservatively and that corporate earnings improved in the second half of last year compared with the first half, leaving ample room for higher tax receipts. Specifically, the report estimated that tax revenue will increase by 23.8 trillion won this year to around 396.1 trillion won, and added, "Based on these tax conditions, a substantial portion of the extra budget can be financed without issuing additional government bonds."
The impact of the extra budget is expected to focus on supporting growth. Morgan Stanley anticipated that a large share of the package will be executed as direct transfer spending to households and hard‐hit sectors. It cited consumption vouchers, energy vouchers, and targeted support for vulnerable industries as likely key measures. While the fiscal multiplier is estimated to be only around 0.2, the bank projected that full execution of the 25 trillion won package would raise this year's GDP growth rate by about 0.15 percentage points, thereby partially offsetting the growth slowdown caused by high oil prices.
The inflation impact is expected to be limited. The report estimated that even if roughly 15 trillion won is injected through local currency schemes or consumption vouchers, the effect on dining‐out prices and overall goods prices would be capped at about 0.1 percentage points. As evidence, it pointed out that when consumption vouchers were distributed in the second half of last year, the contribution of personal services prices to inflation barely changed, slipping from 1.0 percentage point in the first half to 0.97 percentage points in the second half. In other words, the current fiscal response is designed more to cushion the shock from surging energy prices than to stimulate demand, so the risk of reigniting inflation is seen as limited.
The main beneficiaries are likely to be low‐income households and industries directly exposed to higher energy costs. Morgan Stanley highlighted refining, petrochemicals, shipping, and airlines as particularly vulnerable sectors, and noted that the government has already announced a series of measures such as extending fuel tax cuts, releasing strategic oil reserves, promoting energy‐saving campaigns, and securing alternative supply sources for crude oil and LNG. The bank expects the extra budget to function as a fiscal package to counter the energy shock, complementing these administrative price‐stabilization steps.






khj91@fnnews.com Kim Hyun-jung Reporter