[THE INVESTOR] South Korea’s rising youth unemployment is reason enough for the government to push early for extra spending for the latter half of the year, as youth unemployment will hurt economic prospects.

Amid a low growth forecast and a negative outlook for the job market beset by a growing number of companies reluctant to hire, Korea’s youth unemployment reached 10.3 percent in June.


Without the supplementary budget, Finance Minister Yoo Il-ho told a National Assembly committee, Korea could see its growth fall below its forecast of 2.8 percent to 2.5 percent this year. The Finance Ministry proposed last month to spend around 20 trillion won, including a supplementary budget of some 10 trillion won.

“We came to a conclusion that the government needs to preemptively implement an expansionary fiscal policy through the allocation of extra spending as unemployment, due to restructuring, is becoming a bigger problem than we thought,” Finance Minister Yoo said.

Korea’s youth unemployment in June rose 0.1 percentage from the same period last year, and increased 0.6 percentage from May this year. This was the highest since 1999 during the Asian financial crisis when youth unemployment was 11.3 percent, according to Statistics Korea.

Apart from companies restructuring and operating with cost-cutting measures, the U.S.-Korea’s deployment of the THAAD anti-missile defense system is further weighing on already low sentiment, causing concern in the private sector over the possibility of China retaliating against its businesses.

The government said that it is currently devising a contingency plan against China’s possible retaliation, but doubts that China will treat Korean businesses unfairly.

“We are making a contingency plan against some possibilities. I do not think there will be any economic measures taken against Korea,” Yoo told the committee, noting that when he met his Chinese counterpart, China did not mention anything regarding the THAAD system.


Despite growing economic concerns at home, Korea’s main equity index hit an intraday high of 2,013.60 on Wednesday, spurred by the bull market on Wall Street where the Dow Jones Industrial and S&P 500 closed at record highs for three straight days.

The Dow Jones Industrial Average closed on Tuesday at 18,347, up 120.74 and S&P 500 reached 2,152 on positive U.S. economic outlooks.

Even with Korea’s high youth unemployment, the Bank of Korea is unlikely to cut its interest rate when it holds its monetary policy committee meeting on Thursday, given that it slashed it to a record low of 1.25 percent in June, analysts say.

BOK Gov. Lee Ju-yeol mentioned Korea’s extremely high household debt reaching above 1,200 trillion won, hinting at difficulties in further lowering its borrowing costs.

By Park Hyong-ki (hkp@heraldcorp.com)