The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
South Korea's government has announced plans to increase budget spending to US$510 billion for 2025, marking a cautious approach to fiscal expansion as the country grapples with an aging population and slowing economic growth. The budget, detailed by the finance ministry, reflects a commitment to fiscal discipline under the conservative Yoon Suk Yeol administration, which has prioritized improving the nation's fiscal position since taking office.
Key Takeaways:
Moderate Spending Increase: The government has set its total expenditure for 2025 at 677.4 trillion won (US$510.5 billion), a 3.2% increase from 2024. While this represents a slight increase compared to the 2.8% rise in 2024, it falls short of the previously projected 4.2% growth for 2025. This modest increase underscores the administration's focus on fiscal sustainability, particularly in the face of long-term challenges like an aging population and sluggish economic growth.
Focus on Fiscal Responsibility: The Yoon administration continues to prioritize fiscal responsibility, with plans to reduce the fiscal deficit from 3.6% of GDP in 2024 to 2.9% in 2025. However, the debt-to-GDP ratio is expected to rise to 48.3% from 47.4%. Despite these efforts, the government is also planning to increase spending in critical areas, including social welfare, defense, and research, with a notable 11.8% increase in research funding to support sectors like the semiconductor industry.
Economic Outlook and Legislative Challenges: South Korea's economy is forecasted to grow by 2.6% in 2024 and 2.2% in 2025, following a 1.4% expansion in 2023, its slowest in three years. The government's budget plans, which include substantial public housing projects and support for corporate investment in key industries, will need to navigate the political landscape, as the national assembly, currently controlled by the opposition, will have the final say on the budget's approval.
In summary, South Korea's 2025 budget reflects a careful balance between necessary fiscal expansion and the need for long-term sustainability, with the government aiming to address economic challenges while maintaining fiscal discipline.
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