• South Korea's Finance Minister, Choi Sang-mok, stated that the government is prioritizing domestic demand over household debt.
• This shift in policy comes as the Bank of Korea holds interest rates steady at 3.50%, despite the U.S. Federal Reserve's recent rate cut.
• Choi announced new measures to stabilize input costs for construction firms and control rising house prices.
• Choi expressed optimism about South Korea's economic growth, expecting it to be around mid-2% in 2024, led by robust exports.

South Korea's Finance Minister, Choi Sang-mok, recently made a statement that has drawn attention to the country's economic policy. He stated that the government's policy priority is more focused on tackling slowing domestic demand than rising household debt in the short term. This statement was made during a discussion forum where he was asked about policy priorities.

Choi's emphasis on the recovery of domestic demand over household debt is a significant shift in the country's economic policy. It reflects the government's concern over the slowing domestic demand, which has been a persistent issue in the South Korean economy. The recovery of domestic demand is seen as crucial for an immediate economic boost, especially given the current slowdown.

This shift in policy priority comes at a time when the Bank of Korea has held its interest rates steady at 3.50%, the highest since late 2008. This decision was made despite the U.S. Federal Reserve's recent interest rate cut.

Bank of Korea's Response to U.S. Federal Reserve's Interest Rate Cut

The U.S. central bank last week initiated a series of interest rate cuts with a larger-than-usual half-percentage-point reduction. This move was meant to show policymakers' commitment to sustaining a low unemployment rate now that inflation has eased.

However, the Bank of Korea's decision to hold interest rates steady was influenced by concerns about rising house prices and household debt. These concerns were heightened by the fact that in August, South Korea's house prices picked up pace, with prices in the capital Seoul rising at the fastest rate in more than 4-1/2 years, even after a government policy package was introduced to boost supply in the real estate market.

In response to these concerns, Choi stated that the government would continue efforts to calm the housing market with sufficient supply. He also announced that new measures would soon be introduced to stabilize input costs for construction firms.

South Korea's Economic Outlook and Government Measures

These measures are expected to help control the rising costs in the construction sector, which have been a significant factor in the increase in house prices. Looking ahead, Choi expressed optimism about South Korea's economic growth. He stated that the country's economic growth is expected to be at a level around mid-2% in 2024, which is higher than its growth potential.

This growth is expected to be led by robust exports, while the recovery of domestic demand is comparably sluggish. This shift in policy priority by the South Korean government is reminiscent of similar moves made by other countries in the past.

For instance, during the 2008 financial crisis, many countries prioritized the recovery of domestic demand over tackling household debt. This was done to stimulate economic growth and prevent a deep recession.

However, the new move, coupled with the measures to stabilize the housing market and control construction costs, is expected to stimulate economic growth and lead to a recovery in domestic demand.