S. Korea lowers 2022 growth outlook, pledges to cut corporate tax rate


Band Jihoon Lee and Cynthia Kim

SEOUL, June 16 (Reuters)South Korea’s economy will grow at its slowest pace in three years in 2022 as the world faces supply bottlenecks, soaring inflation and rapidly rising rates of interest, the Ministry of Finance announced on Thursday.

Outlining its first economic policy initiatives, President Yoon Suk-yeol’s new government said it had lowered this year’s growth forecast to 2.6% from 3.1% and raised the inflation forecast by 2 .2% to 4.7%, the fastest since 2008.

“We place the highest priority on price stabilization as it is our common understanding,” Finance Minister Choo Kyung-ho said, referring to Bank of Korea (BOK) Governor Rhee Chang-yong. , and other prominent policymakers, whom he had met early on. Thursday.

To help South Korean businesses reduce inflationary pressure, the government has proposed lowering the top corporate tax rate to 22%, the average for countries in the Organization for Economic Co-operation and Development. The rate for around 100 of the biggest companies has been 25% since 2018, when the former government increased it to pay more social protection.

South Korea’s economy, Asia’s fourth largest, recorded its fastest annual growth since 2010 last year. But when the Yoon administration came to power last month, the country suddenly faced a disruption of the global supply chain and difficulties in sustaining exports.

The ministry said the entire global economy was suffering from bottlenecks, as well as the Ukraine crisis, inflation, faster monetary tightening in major countries and lockdowns in China.

Yoon pledged during his election campaign to support a “private sector-led economy”. His measures would help South Korean businesses cope with higher minimum wages, rising borrowing costs and limits imposed by the previous administration on working hours.

Markets expect the BOK to continue to move aggressively after implementing a 125 basis point interest rate hike since mid-2021. The further increases expected will likely affect the private consumption of households struggling with the highest debt burdens in the world.

On Thursday, the ministry said increasing capital investment in key technology sectors was one of its key policy initiatives. Between 8% and 12% of investments by large conglomerates in the manufacture of semiconductors and organic light-emitting diodes will be deductible from corporate tax, compared to 6% to 10% currently.

In addition, South Korea would improve foreign traders’ access to USD/KRW exchanges. This will help the country in its quest for inclusion in the MSCI Developed Markets Index.

The government plans to extend the USD/KRW spot market trading time to 5pm – 00:00 GMT to 17:00 GMT. It will also allow overseas-based dealers to participate, with details to be disclosed in Q3.

Currently, onshore USD/KRW trading hours are from 00:00 GMT to 06:30 GMT and only locally licensed financial institutions can participate.

To revive stock prices after the market fell nearly 18% this year, the government decided to scrap capital gains taxes on retail investors, except for holdings of a worth more than 10 billion won ($7.74 million) in one stock.

The government also plans to reduce the stock transaction tax to 0.20% from 0.23% from next year.

($1 = 1,291.1900 won)

(Reporting by Jihoon Lee and Cynthia Kim; Editing by Bradley Perrett)

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