The impeachment motion against President Yoon Suk-yeol passed in the National Assembly, marking the arrival of "the Constitutional Court's time." This is the third presidential impeachment phase in the history of the constitutional government. Hanwha Investment & Securities assessed on the 15th that a supplementary budget is necessary to overcome political uncertainty.
This is due to the unfavorable economic situation compared to the past. During the impeachment phase of President Roh Moo-hyun in 2004, China was experiencing rapid growth, and during the impeachment phase of President Park Geun-hye in 2017, the semiconductor market was performing well.
Lim Hye-yun, a researcher at Hanwha Investment & Securities, noted, "The rapid growth of China in 2004 and the prosperity of the semiconductor industry in 2017 were enough to fill domestic political uncertainty at that time. Now we are faced with a burdensome external environment that requires policy responses." He added, "A realistic option is to prepare a supplementary budget."
Lim diagnosed that the decline in export growth and political uncertainty have increased the likelihood of deteriorating consumer sentiment. The domestic economy, which was expected to recover, has also become likely to contract.
As of the end of September this year, the cumulative economic growth rate is at 2.3%, but the growth contribution of domestic demand is -0.2 percentage points. It has only been during unforeseen times, like after the global financial crisis in 2009 or when the COVID-19 pandemic broke out in 2020, that the growth contribution of domestic demand recorded a negative figure.
The labor market is similar. This year, the number of employed individuals increased by 178,000 as of November, the smallest increase since the COVID-19 pandemic. Lim stated, "If private sector job demand is weak, it is not easy to improve purchasing power, and consumer capacity is also weakened. Therefore, policy responses to recover private demand are necessary, and the sooner, the better."
The budget proposal for 2025, which passed the National Assembly's plenary session, has been reduced by 4.1 trillion won compared to the government's original plan. Excluding contingency funds, it has been reduced by about 1.7 trillion won. Lim stated, "The passage of the budget without discussion or amendment between the ruling and opposition parties or the government due to political conflicts is burdensome, which is why a supplementary budget response is necessary."
According to the National Assembly Budget Office, it is estimated that expanding expenditures by 0.6% (15 trillion won) compared to gross domestic product (GDP) can increase the economic growth rate by about 0.2 percentage points. Lim forecasted that the scale of the supplementary budget could grow to between 10 trillion and 20 trillion won. He stated, "The passage and execution of the supplementary budget is expected to be possible in the first quarter of 2025, or at the latest, in the second quarter. I hope the supplementary budget will focus more on inducing the recovery of private demand rather than expanding the public sector."