South Korean stimulus fails to stir markets

Ben Southwood
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SOUTH Korea will engage in additional fiscal stimulus, in order to carry its export-driven economy through the world slowdown, it announced yesterday.

Policymakers in Seoul cannot do anything about their beleaguered export markets directly, and are therefore adding nearly £3.3bn worth of stimulus to the near-£4.5bn announced in June.

But markets were disappointed by the magnitude of the interventions, given that together they amount to only around one per cent of the country’s GDP. The KOSPI composite index of the 100 firms with the biggest market capitalisation closed 0.25 per cent down yesterday.

Analysts said that the stimulus was small because the slowdown was much more muted in Asia compared to Europe and the US. “The growth slowdown has been incremental and it's all being met with incremental policies,” said Nigel Chalk, emerging markets expert at Barclays.

Compared to Europe and the US, the South Korean national debt, at roughly 34 per cent of GDP, gives much more room for manoeuvre on fiscal policy.