韩国选举预览：注意财政政策的迅速转变

Issuer of report:The Hongkong and ShanghaiBanking Corporation LimitedView HSBC Global Research at:https://www.research.hsbc.comListen to our insightsFind out moreHSBC Global Research PodcastsJin ChoiEconomist, Korea & TaiwanThe Hongkong and Shanghai Banking Corporation Limitedjin.h.j.choi@hsbc.com.hk+852 2996 6597EconomicsKorea ◆◆◆ Koreans head to the polls to elect the new presidenton 3 JuneAn immediatetransitionOn 3 June,Koreawill be votingforthe country’snext president. This follows the ConstitutionalCourt’simpeachment confirmation on 4 April(seePresident impeached:What now for KoreaEconomics, Rates, and FX?, 4 April2025),which required the next president to beelectedwithin 60 days. Given the unusual politicalcircumstances, the new presidentand hisadministration willassumeofficeimmediatelyinstead ofgoing throughthe usualtwo-monthtransitional period.What the polls sayThe main opposition DPK’s Lee Jae-myungis seen as the favourite. The majority ofopinionpollssuggest that Korean voterswanta change in governmentaftertherecentpolitical turmoilandPolymarket,aleadingpredictionplatform, forecasts the chances of the DPKcandidatebecomingKorea’s 21stpresidentat more than 90%(Chart 1).However, the opinion polls showthat both PPP’s Kim Moon-soo and Reform Party’s Lee Jun-seok are gaining some momentumat the time of writing(Chart 2).Chart 1: Polymarket:“Next president of (South) Korea?”Source:Bloomberg, HSBCChart2: The recentpoll results on“Who would you like to have as Korea’s nextpresident?”Source:KoreaGallup, National Barometer Survey, HSBC; Note: dots denote timings of surveys for Korea Gallup (solid lines) and NationalBarometer Survey (dotted lines) 3AlthoughKim Moon-soo’s camphasbeenseekingto join forces withLee Jun-seok,who hasaround 10% of the vote according to the polls, Mr Lee statedata press briefing on 27 May thathe has no intentionofdroppingouttosupport Kim Moon-soo.1Below, we discussthepolicy implications of theelection. Note we limit our discussion tocomparingLee Jae-myung and Kim Moon-soo,the twoleading candidates whorepresent thetwo major parties (Chart9).Please seeAppendixA1-3for the three candidates’official top 10election pledges.Fiscal policy: How much will it expandafter theelection?An immediate fiscal loosening: 2ndsupplementary budget to support 2H25 growthAbove all else, we seemajorimplicationsforfiscal policy(Table 1)as domestic politicaldevelopments havekeptthegovernment from responding more proactively totheweak growthof late(seeAfter the vote:What now for Korea’s fiscal policy?, 11 December 2024).We are already seeing signs ofan immediatefiscal loosening ahead, regardless of the electionoutcome. Lee Jae-myunghasstated that he would pursue the 2ndsupplementary budget,2whileKim Moon-soo on 27 Maysaidhe would pursue a KRW30trn-sized budget from Day 1(Chart 3)(Yonhap News Agency, 27 May).In our base case, we now expect the 2ndsupplementarybudgetto be implementedfrom 2H25 andadda cumulativec0.2-0.3pptto GDP growthacross2025-2026e.Lee Jae-myung is likelytofavour amoreproactive fiscal policy from 2026Beyond 2H25, we see more upside risks to Korea’s fiscalpolicy, likely more so under Lee Jae-myung. First, we note that the past DPK administration under President Moon Jae-in tended tofavoura gradualfiscal loosening, in contrast to the past two PPP administrations,whichhadsought fiscal consolidation (Chart 4).On the campaign trailLee Jae-myung hasalsobeenarguing forthe government to playa larger role in stimulating the economy, stressing Korea’srelatively lowlevel ofpublic debt (Yonhap News Agency, 21 May).Table 1: Fiscal policy agenda: Lee Jae-myung vs. Kim Moon-sooSource:Korea Manifesto Center, National Election Commission, Maeil Economic Daily, HSBC; Note: *based on theprevious discussion for the 1stsupplementary budget______________________________________1Lee Jun-seok is a former leader of PPP (2021-2022)and has been openly criticising Lee Jae-myung’s policy agenda.However, it is unclear how much Kim Moon-soomaybe able to gain in case of consolidation as the two candidates alsodiffer on various issues.According toChosun Daily, 28 May is widely viewed as the last day such agreement could bereached betweenthetwo candidates.2Mr. Lee hasnot explicitly commentedonthe size of the 2nd supplementary budget he would seek.CategoryMr. Lee Jae-myungMr. Kim Moon-soo2nd supplementarybudget (size)> KRW20trn*KRW30trnGeneral fiscal policystanceMore expansionaryMore prudentPreferred fiscal toolsIncreased expenditure when necessaryTax cutsMajor spending areas(estimated cost)Expansion of childcare allowance (KRW29.9trn)Basic income for agricultural households(KRW23.4-31.2trn)Western energy expressway project (KRW7.9-20trn)Abolition of 20% deduction in basic pension for couples(KRW15.2trn)Estimated total: cKRW210trnExpansion of R&D spending on science & technology(KRW47trn)Support for children's asset accumulation (KRW30trn)Capex on AI (KRW20trn)Relocation of public institutions (KRW10trn)Estimated total: cKRW150